The Return Trends At Energix - Renewable Energies (TLV:ENRG) Look Promising

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Energix - Renewable Energies (TLV:ENRG) 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 Energix - Renewable Energies:

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

0.05 = ₪277m ÷ (₪6.1b - ₪555m) (Based on the trailing twelve months to December 2022).

So, Energix - Renewable Energies has an ROCE of 5.0%. On its own that's a low return, but compared to the average of 0.5% generated by the Renewable Energy industry, it's much better.

View our latest analysis for Energix - Renewable Energies

Historical performance is a great place to start when researching a stock so above you can see the gauge for Energix - Renewable Energies' ROCE against it's prior returns. If you're interested in investigating Energix - Renewable Energies' past further, check out this free graph of past earnings, revenue and cash flow.

SWOT Analysis for Energix - Renewable Energies

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 5.0%. Basically the business is earning more per dollar of capital invested and in addition to that, 292% 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.

The Bottom Line On Energix - Renewable Energies' ROCE

In summary, it's great to see that Energix - Renewable Energies can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we found 3 warning signs for Energix - Renewable Energies (2 are a bit concerning) you should be aware of.

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.