Investors Will Want Energix - Renewable Energies' (TLV:ENRG) Growth In ROCE To Persist

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Energix - Renewable Energies' (TLV:ENRG) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its 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)

0.056 = ₪401m ÷ (₪8.4b - ₪1.3b) (Based on the trailing twelve months to September 2023).

Therefore, Energix - Renewable Energies has an ROCE of 5.6%. In absolute terms, that's a low return, but it's much better than the Renewable Energy industry average of 3.1%.

See 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?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 5.6%. The amount of capital employed has increased too, by 362%. So we're very much inspired by what we're seeing at Energix - Renewable Energies thanks to its ability to profitably reinvest capital.

In Conclusion...

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 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 Energix - Renewable Energies can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 3 warning signs with Energix - Renewable Energies (at least 2 which can't be ignored) , and understanding them would certainly be useful.

While Energix - Renewable Energies 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.