The Return Trends At Terna Energy Societe Anonyme Commercial Technical (ATH:TENERGY) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. So when we looked at Terna Energy Societe Anonyme Commercial Technical (ATH:TENERGY) and its trend of ROCE, we really liked what we saw.

What is 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. Analysts use this formula to calculate it for Terna Energy Societe Anonyme Commercial Technical:

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

0.082 = €121m ÷ (€1.8b - €302m) (Based on the trailing twelve months to December 2021).

Thus, Terna Energy Societe Anonyme Commercial Technical has an ROCE of 8.2%. In absolute terms, that's a low return, but it's much better than the Renewable Energy industry average of 4.7%.

View our latest analysis for Terna Energy Societe Anonyme Commercial Technical

Above you can see how the current ROCE for Terna Energy Societe Anonyme Commercial Technical compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Terna Energy Societe Anonyme Commercial Technical here for free.

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 8.2%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 27%. 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.

Our Take 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 544% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Terna Energy Societe Anonyme Commercial Technical does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is potentially serious...

While Terna Energy Societe Anonyme Commercial Technical 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.