We Like These Underlying Return On Capital Trends At Solaria Energía y Medio Ambiente (BME:SLR)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Solaria Energía y Medio Ambiente (BME:SLR) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Solaria Energía y Medio Ambiente is:

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

0.054 = €34m ÷ (€716m - €86m) (Based on the trailing twelve months to December 2020).

Thus, Solaria Energía y Medio Ambiente has an ROCE of 5.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.4%.

See 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.

The Trend Of ROCE

We're delighted to see that Solaria Energía y Medio Ambiente is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 5.4% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Solaria Energía y Medio Ambiente is utilizing 365% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line

In summary, it's great to see that Solaria Energía y Medio Ambiente has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 2,131% 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.

If you'd like to know about the risks facing Solaria Energía y Medio Ambiente, we've discovered 2 warning signs that you should be aware of.

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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.
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