EnBW Energie Baden-Württemberg (ETR:EBK) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, EnBW Energie Baden-Württemberg (ETR:EBK) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for EnBW Energie Baden-Württemberg:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.088 = €4.0b ÷ (€71b - €26b) (Based on the trailing twelve months to March 2023).

Therefore, EnBW Energie Baden-Württemberg has an ROCE of 8.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.9%.

See our latest analysis for EnBW Energie Baden-Württemberg

Historical performance is a great place to start when researching a stock so above you can see the gauge for EnBW Energie Baden-Württemberg's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of EnBW Energie Baden-Württemberg, check out these free graphs here.

So How Is EnBW Energie Baden-Württemberg's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.8%. The amount of capital employed has increased too, by 62%. So we're very much inspired by what we're seeing at EnBW Energie Baden-Württemberg thanks to its ability to profitably reinvest capital.

Our Take On EnBW Energie Baden-Württemberg's ROCE

All in all, it's terrific to see that EnBW Energie Baden-Württemberg is reaping the rewards from prior investments and is growing its capital base. And a remarkable 183% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

EnBW Energie Baden-Württemberg does have some risks though, and we've spotted 2 warning signs for EnBW Energie Baden-Württemberg that you might be interested in.

While EnBW Energie Baden-Württemberg may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.