Returns Are Gaining Momentum At Frendy Energy (BIT:FRE)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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 Frendy Energy (BIT:FRE) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Frendy Energy is:

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

0.011 = €153k ÷ (€14m - €497k) (Based on the trailing twelve months to December 2023).

Thus, Frendy Energy has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 5.9%.

View our latest analysis for Frendy Energy

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Frendy Energy's past further, check out this free graph covering Frendy Energy's past earnings, revenue and cash flow.

What Does the ROCE Trend For Frendy Energy Tell Us?

It's nice to see that ROCE is headed in the right direction, even if it is still relatively low. The data shows that returns on capital have increased by 216% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Frendy Energy appears to been achieving more with less, since the business is using 23% less capital to run its operation. Frendy Energy may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

In a nutshell, we're pleased to see that Frendy Energy has been able to generate higher returns from less capital. And since the stock has fallen 41% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing to note, we've identified 3 warning signs with Frendy Energy and understanding them should be part of your investment process.

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.