Why The 24% Return On Capital At S.P.E.E.H. Hidroelectrica (BVB:H2O) Should Have Your Attention

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at S.P.E.E.H. Hidroelectrica's (BVB:H2O) look very promising so lets take a look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for S.P.E.E.H. Hidroelectrica:

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

0.24 = RON5.9b ÷ (RON26b - RON1.8b) (Based on the trailing twelve months to June 2024).

Therefore, S.P.E.E.H. Hidroelectrica has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 5.7% earned by companies in a similar industry.

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 .

What The Trend Of ROCE Can Tell Us

The trends we've noticed at S.P.E.E.H. Hidroelectrica are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 24%. 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 41%. 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.

What We Can Learn From 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. And with a respectable 17% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 2 warning signs for S.P.E.E.H. Hidroelectrica you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.