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? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Ecosuntek (BIT:ECK) and its trend of ROCE, we really liked what we saw.

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What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Ecosuntek:

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

0.17 = €14m ÷ (€258m - €174m) (Based on the trailing twelve months to December 2024).

So, Ecosuntek has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Renewable Energy industry average of 4.5% it's much better.

View our latest analysis for Ecosuntek

Above you can see how the current ROCE for Ecosuntek compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Ecosuntek for free.

What Does the ROCE Trend For Ecosuntek Tell Us?

The trends we've noticed at Ecosuntek are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 202%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 68% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

Our Take On Ecosuntek's ROCE

To sum it up, Ecosuntek has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 291% 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 Ecosuntek can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 3 warning signs we've spotted with Ecosuntek (including 1 which is significant) .

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. 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.