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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, EnBW Energie Baden-Württemberg (ETR:EBK) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for EnBW Energie Baden-Württemberg, this is the formula:

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

0.12 = €5.2b ÷ (€63b - €19b) (Based on the trailing twelve months to September 2023).

Therefore, EnBW Energie Baden-Württemberg has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 9.5% generated by the Electric Utilities industry.

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 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?

Investors would be pleased with what's happening at EnBW Energie Baden-Württemberg. The data shows that returns on capital have increased substantially over the last five years to 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 59% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

To sum it up, EnBW Energie Baden-Württemberg has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, EnBW Energie Baden-Württemberg does come with some risks, and we've found 2 warning signs that you should be aware of.

While EnBW Energie Baden-Württemberg isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.