The Return Trends At Ecosuntek (BIT:ECK) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Ecosuntek (BIT:ECK) 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. The formula for this calculation on Ecosuntek is:

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

0.071 = €2.1m ÷ (€57m - €28m) (Based on the trailing twelve months to June 2020).

Therefore, Ecosuntek has an ROCE of 7.1%. In absolute terms, that's a low return, but it's much better than the Renewable Energy industry average of 5.9%.

See our latest analysis for Ecosuntek

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

So How Is Ecosuntek's ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at Ecosuntek. We found that the returns on capital employed over the last five years have risen by 68%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 23% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 49% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

The Bottom Line

In a nutshell, we're pleased to see that Ecosuntek has been able to generate higher returns from less capital. Considering the stock has delivered 25% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you want to know some of the risks facing Ecosuntek we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

While Ecosuntek 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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