Returns On Capital Are Showing Encouraging Signs At SOL (BIT:SOL)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, SOL (BIT:SOL) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for SOL:

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

0.14 = €222m ÷ (€2.1b - €423m) (Based on the trailing twelve months to June 2024).

Thus, SOL has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.8% generated by the Chemicals industry.

See our latest analysis for SOL

In the above chart we have measured SOL's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for SOL .

So How Is SOL's ROCE Trending?

Investors would be pleased with what's happening at SOL. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 70%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From SOL's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what SOL has. Since the stock has returned a staggering 286% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if SOL can keep these trends up, it could have a bright future ahead.

While SOL looks impressive, no company is worth an infinite price. The intrinsic value infographic for SOL helps visualize whether it is currently trading for a fair price.

While SOL 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.