Returns Are Gaining Momentum At Enlight Renewable Energy (TLV:ENLT)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Enlight Renewable Energy (TLV:ENLT) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Enlight Renewable Energy, this is the formula:

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

0.035 = US$175m ÷ (US$5.5b - US$592m) (Based on the trailing twelve months to December 2024).

Therefore, Enlight Renewable Energy has an ROCE of 3.5%. Even though it's in line with the industry average of 4.0%, it's still a low return by itself.

Check out our latest analysis for Enlight Renewable Energy

Above you can see how the current ROCE for Enlight Renewable 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 Enlight Renewable Energy .

What Does the ROCE Trend For Enlight Renewable Energy Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 3.5%. Basically the business is earning more per dollar of capital invested and in addition to that, 321% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Enlight Renewable Energy's ROCE

To sum it up, Enlight Renewable Energy has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Enlight Renewable Energy can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 3 warning signs we've spotted with Enlight Renewable Energy (including 2 which are concerning) .

While Enlight Renewable Energy isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.