S.P.E.E.H. Hidroelectrica (BVB:H2O) Is Experiencing Growth In Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 on that note, S.P.E.E.H. Hidroelectrica (BVB:H2O) looks quite promising in regards to its trends of return on capital.

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Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on S.P.E.E.H. Hidroelectrica is:

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

0.17 = RON4.4b ÷ (RON27b - RON1.1b) (Based on the trailing twelve months to December 2024).

Thus, S.P.E.E.H. Hidroelectrica has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Renewable Energy industry average of 5.1% it's much better.

Check out our latest analysis for S.P.E.E.H. Hidroelectrica

In the above chart we have measured S.P.E.E.H. Hidroelectrica's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for S.P.E.E.H. Hidroelectrica .

So How Is S.P.E.E.H. Hidroelectrica's ROCE Trending?

S.P.E.E.H. Hidroelectrica is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 55%. So we're very much inspired by what we're seeing at S.P.E.E.H. Hidroelectrica thanks to its ability to profitably reinvest capital.

The Bottom Line On S.P.E.E.H. Hidroelectrica's ROCE

To sum it up, S.P.E.E.H. Hidroelectrica has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 1.8% to shareholders over the last year, 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.

Like most companies, S.P.E.E.H. Hidroelectrica does come with some risks, and we've found 1 warning sign that you should be aware of.

While S.P.E.E.H. Hidroelectrica 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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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.