Returns On Capital Are Showing Encouraging Signs At S.N. Nuclearelectrica (BVB:SNN)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in S.N. Nuclearelectrica's (BVB:SNN) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on S.N. Nuclearelectrica is:

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

0.17 = RON2.0b ÷ (RON13b - RON689m) (Based on the trailing twelve months to June 2024).

Thus, S.N. Nuclearelectrica has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 7.5% generated by the Electric Utilities industry.

View our latest analysis for S.N. Nuclearelectrica

In the above chart we have measured S.N. Nuclearelectrica's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for S.N. Nuclearelectrica .

The Trend Of ROCE

We like the trends that we're seeing from S.N. Nuclearelectrica. Over the last five years, returns on capital employed have risen substantially 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 46%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On S.N. Nuclearelectrica's ROCE

To sum it up, S.N. Nuclearelectrica has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 288% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if S.N. Nuclearelectrica can keep these trends up, it could have a bright future ahead.

S.N. Nuclearelectrica does have some risks, we noticed 2 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.