Energix - Renewable Energies (TLV:ENRG) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Energix - Renewable Energies (TLV:ENRG) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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 Energix - Renewable Energies is:

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

0.029 = ₪107m ÷ (₪4.1b - ₪421m) (Based on the trailing twelve months to September 2021).

So, Energix - Renewable Energies has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Renewable Energy industry average of 6.7%.

View our latest analysis for Energix - Renewable Energies

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Energix - Renewable Energies has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

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 2.9%. Basically the business is earning more per dollar of capital invested and in addition to that, 223% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Energix - Renewable Energies' ROCE

All in all, it's terrific to see that Energix - Renewable Energies is reaping the rewards from prior investments and is growing its capital base. And a remarkable 463% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Energix - Renewable Energies can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Energix - Renewable Energies, we've spotted 3 warning signs, and 2 of them are potentially serious.

While Energix - Renewable Energies 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.