Returns Are Gaining Momentum At Corporación Acciona Energías Renovables (BME:ANE)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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, Corporación Acciona Energías Renovables (BME:ANE) looks quite promising in regards to its trends of return on capital.

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 Corporación Acciona Energías Renovables is:

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

0.13 = €1.2b ÷ (€12b - €2.4b) (Based on the trailing twelve months to December 2022).

Thus, Corporación Acciona Energías Renovables has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 7.0% generated by the Renewable Energy industry.

See our latest analysis for Corporación Acciona Energías Renovables

In the above chart we have measured Corporación Acciona Energías Renovables' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Corporación Acciona Energías Renovables.

What Does the ROCE Trend For Corporación Acciona Energías Renovables Tell Us?

Investors would be pleased with what's happening at Corporación Acciona Energías Renovables. The data shows that returns on capital have increased substantially over the last five years to 13%. 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 69%. 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.

One more thing to note, Corporación Acciona Energías Renovables has decreased current liabilities to 20% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On Corporación Acciona Energías Renovables' ROCE

To sum it up, Corporación Acciona Energías Renovables has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 29% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Corporación Acciona Energías Renovables, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Corporación Acciona Energías Renovables 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.