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

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 on that note, Frendy Energy (BIT:FRE) looks quite promising in regards to its trends of return on capital.

Understanding 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. The formula for this calculation on Frendy Energy is:

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

0.037 = €515k ÷ (€14m - €492k) (Based on the trailing twelve months to June 2024).

Therefore, Frendy Energy has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 6.3%.

Check out 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Frendy Energy.

How Are Returns Trending?

While the ROCE is still rather low for Frendy Energy, we're glad to see it heading in the right direction. The data shows that returns on capital have increased by 529% over the trailing five years. 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 21% less than it was five years ago, which can be indicative of a business that's improving its efficiency. 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.

The Key Takeaway

In summary, it's great to see that Frendy Energy has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has only returned 16% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Frendy Energy does have some risks, we noticed 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.