Eni (BIT:ENI) Shareholders Will Want The ROCE Trajectory To Continue

By
Simply Wall St
Published
July 01, 2021
BIT:ENI
Source: Shutterstock

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 when we looked at Eni (BIT:ENI) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Eni:

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

0.004 = €356m ÷ (€116b - €26b) (Based on the trailing twelve months to March 2021).

Thus, Eni has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 5.6%.

View our latest analysis for Eni

roce
BIT:ENI Return on Capital Employed July 1st 2021

Above you can see how the current ROCE for Eni compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Eni's ROCE Trend?

Eni has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 0.4% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line On Eni's ROCE

As discussed above, Eni appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching Eni, you might be interested to know about the 1 warning sign that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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