TERNA ENERGY Industrial Commercial Technical Societe Anonyme (ATH:TENERGY) Will Be Hoping To Turn Its Returns On Capital Around

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at TERNA ENERGY Industrial Commercial Technical Societe Anonyme (ATH:TENERGY) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. Analysts use this formula to calculate it for TERNA ENERGY Industrial Commercial Technical Societe Anonyme:

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

0.034 = €59m ÷ (€2.0b - €308m) (Based on the trailing twelve months to March 2023).

So, TERNA ENERGY Industrial Commercial Technical Societe Anonyme has an ROCE of 3.4%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 6.8%.

Check out our latest analysis for TERNA ENERGY Industrial Commercial Technical Societe Anonyme

Above you can see how the current ROCE for TERNA ENERGY Industrial Commercial Technical Societe Anonyme 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?

When we looked at the ROCE trend at TERNA ENERGY Industrial Commercial Technical Societe Anonyme, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 3.4% from 8.9% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On TERNA ENERGY Industrial Commercial Technical Societe Anonyme's ROCE

While returns have fallen for TERNA ENERGY Industrial Commercial Technical Societe Anonyme in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has done incredibly well with a 391% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

TERNA ENERGY Industrial Commercial Technical Societe Anonyme does have some risks, we noticed 4 warning signs (and 1 which is potentially serious) we think you should know about.

While TERNA ENERGY Industrial Commercial Technical Societe Anonyme 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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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.