Why The 26% Return On Capital At S.N. Nuclearelectrica (BVB:SNN) 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? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at the ROCE trend of S.N. Nuclearelectrica (BVB:SNN) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for S.N. Nuclearelectrica, this is the formula:

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

0.26 = RON2.9b ÷ (RON12b - RON836m) (Based on the trailing twelve months to June 2023).

So, S.N. Nuclearelectrica has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 9.5% earned by companies in a similar industry.

See our latest analysis for S.N. Nuclearelectrica

Above you can see how the current ROCE for S.N. Nuclearelectrica compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

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 26%. The amount of capital employed has increased too, by 28%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On S.N. Nuclearelectrica's ROCE

In summary, it's great to see that S.N. Nuclearelectrica can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 786% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 2 warning signs with S.N. Nuclearelectrica (at least 1 which is a bit concerning) , and understanding them would certainly be useful.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.