Here's What To Make Of Terna - Rete Elettrica Nazionale Società per Azioni's (BIT:TRN) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. However, after investigating Terna - Rete Elettrica Nazionale Società per Azioni (BIT:TRN), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Terna - Rete Elettrica Nazionale Società per Azioni:

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

0.082 = €1.2b ÷ (€18b - €4.2b) (Based on the trailing twelve months to September 2020).

So, Terna - Rete Elettrica Nazionale Società per Azioni has an ROCE of 8.2%. In absolute terms, that's a low return, but it's much better than the Electric Utilities industry average of 6.4%.

See our latest analysis for Terna - Rete Elettrica Nazionale Società per Azioni

In the above chart we have measured Terna - Rete Elettrica Nazionale Società per Azioni's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Terna - Rete Elettrica Nazionale Società per Azioni here for free.

What Does the ROCE Trend For Terna - Rete Elettrica Nazionale Società per Azioni Tell Us?

Things have been pretty stable at Terna - Rete Elettrica Nazionale Società per Azioni, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Terna - Rete Elettrica Nazionale Società per Azioni doesn't end up being a multi-bagger in a few years time. That being the case, it makes sense that Terna - Rete Elettrica Nazionale Società per Azioni has been paying out 83% of its earnings to its shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

Our Take On Terna - Rete Elettrica Nazionale Società per Azioni's ROCE

We can conclude that in regards to Terna - Rete Elettrica Nazionale Società per Azioni's returns on capital employed and the trends, there isn't much change to report on. Since the stock has gained an impressive 53% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know more about Terna - Rete Elettrica Nazionale Società per Azioni, we've spotted 2 warning signs, and 1 of them is a bit concerning.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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