Returns Are Gaining Momentum At Terna Energy Societe Anonyme Commercial Technical (ATH:TENERGY)

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. With that in mind, we've noticed some promising trends at Terna Energy Societe Anonyme Commercial Technical (ATH:TENERGY) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Terna Energy Societe Anonyme Commercial Technical is:

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

0.097 = €125m ÷ (€1.5b - €177m) (Based on the trailing twelve months to June 2021).

Thus, Terna Energy Societe Anonyme Commercial Technical has an ROCE of 9.7%. On its own that's a low return, but compared to the average of 4.8% generated by the Renewable Energy industry, it's much better.

See our latest analysis for Terna Energy Societe Anonyme Commercial Technical

In the above chart we have measured Terna Energy Societe Anonyme Commercial Technical'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 Terna Energy Societe Anonyme Commercial Technical.

So How Is Terna Energy Societe Anonyme Commercial Technical's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 9.7%. The amount of capital employed has increased too, by 25%. So we're very much inspired by what we're seeing at Terna Energy Societe Anonyme Commercial Technical thanks to its ability to profitably reinvest capital.

The Bottom Line On Terna Energy Societe Anonyme Commercial Technical's ROCE

All in all, it's terrific to see that Terna Energy Societe Anonyme Commercial Technical is reaping the rewards from prior investments and is growing its capital base. And a remarkable 469% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 3 warning signs for Terna Energy Societe Anonyme Commercial Technical (1 is a bit unpleasant) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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