Enento Group Oyj's (HEL:ENENTO) Returns On Capital Not Reflecting Well On The Business

By
Simply Wall St
Published
June 07, 2021
HLSE:ENENTO
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Enento Group Oyj (HEL:ENENTO) and its ROCE trend, we weren't exactly thrilled.

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

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. Analysts use this formula to calculate it for Enento Group Oyj:

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

0.059 = €29m ÷ (€553m - €63m) (Based on the trailing twelve months to March 2021).

Therefore, Enento Group Oyj has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 17%.

View our latest analysis for Enento Group Oyj

roce
HLSE:ENENTO Return on Capital Employed June 8th 2021

Above you can see how the current ROCE for Enento Group Oyj compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

On the surface, the trend of ROCE at Enento Group Oyj doesn't inspire confidence. Over the last five years, returns on capital have decreased to 5.9% from 14% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Enento Group Oyj's ROCE

In summary, Enento Group Oyj is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 143% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Like most companies, Enento Group Oyj does come with some risks, and we've found 2 warning signs that you should be aware of.

While Enento Group Oyj 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.

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