Returns Are Gaining Momentum At EnBW Energie Baden-Württemberg (ETR:EBK)

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at EnBW Energie Baden-Württemberg (ETR:EBK) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on EnBW Energie Baden-Württemberg is:

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

0.026 = €910m ÷ (€50b - €15b) (Based on the trailing twelve months to June 2021).

Thus, EnBW Energie Baden-Württemberg has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Electric Utilities industry average of 7.1%.

Check out 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'd like to look at how EnBW Energie Baden-Württemberg has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

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. Over the last five years, returns on capital employed have risen substantially to 2.6%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 26%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what EnBW Energie Baden-Württemberg has. Since the stock has returned a staggering 324% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, EnBW Energie Baden-Württemberg does come with some risks, and we've found 4 warning signs that you should be aware of.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.