Investors Could Be Concerned With Enwell Energy's (LON:ENW) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Enwell Energy (LON:ENW), we don't think it's current trends fit the mold of a multi-bagger.

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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. The formula for this calculation on Enwell Energy is:

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

0.023 = US$4.3m ÷ (US$190m - US$1.9m) (Based on the trailing twelve months to June 2025).

Therefore, Enwell Energy has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 6.2%.

View our latest analysis for Enwell Energy

Above you can see how the current ROCE for Enwell Energy compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Enwell Energy .

How Are Returns Trending?

When we looked at the ROCE trend at Enwell Energy, we didn't gain much confidence. Around five years ago the returns on capital were 6.7%, but since then they've fallen to 2.3%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line On Enwell Energy's ROCE

In summary, we're somewhat concerned by Enwell Energy's diminishing returns on increasing amounts of capital. In spite of that, the stock has delivered a 24% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

Enwell Energy does have some risks though, and we've spotted 2 warning signs for Enwell Energy that you might be interested in.

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.

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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.