Returns At Solaria Energía y Medio Ambiente (BME:SLR) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 when we looked at Solaria Energía y Medio Ambiente (BME:SLR) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Solaria Energía y Medio Ambiente, this is the formula:

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

0.096 = €127m ÷ (€1.5b - €171m) (Based on the trailing twelve months to March 2023).

So, Solaria Energía y Medio Ambiente has an ROCE of 9.6%. In absolute terms, that's a low return, but it's much better than the Renewable Energy industry average of 7.7%.

Check out our latest analysis for Solaria Energía y Medio Ambiente

In the above chart we have measured Solaria Energía y Medio Ambiente's 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 Solaria Energía y Medio Ambiente.

What Does the ROCE Trend For Solaria Energía y Medio Ambiente Tell Us?

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 9.6%. The amount of capital employed has increased too, by 391%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Solaria Energía y Medio Ambiente's ROCE

All in all, it's terrific to see that Solaria Energía y Medio Ambiente is reaping the rewards from prior investments and is growing its capital base. And a remarkable 156% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Solaria Energía y Medio Ambiente can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Solaria Energía y Medio Ambiente we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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

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.