Returns On Capital Are Showing Encouraging Signs At Energix - Renewable Energies (TLV:ENRG)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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 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?

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 Energix - Renewable Energies, this is the formula:

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

0.037 = ₪196m ÷ (₪5.8b - ₪585m) (Based on the trailing twelve months to September 2022).

Therefore, Energix - Renewable Energies has an ROCE of 3.7%. On its own that's a low return, but compared to the average of 0.9% generated by the Renewable Energy industry, it's much better.

Check out 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 want to delve into the historical earnings, revenue and cash flow of Energix - Renewable Energies, check out these free graphs here.

What Does the ROCE Trend For Energix - Renewable Energies Tell Us?

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 3.7%. 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 278%. So we're very much inspired by what we're seeing at Energix - Renewable Energies thanks to its ability to profitably reinvest capital.

Our Take On 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 with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Energix - Renewable Energies does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are a bit concerning...

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.