Energoprojekt Holding a.d (BELEX:ENHL) Is Experiencing Growth In Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Energoprojekt Holding a.d (BELEX:ENHL) and its trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Energoprojekt Holding a.d, this is the formula:

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

0.078 = дин1.8b ÷ (дин35b - дин11b) (Based on the trailing twelve months to June 2021).

So, Energoprojekt Holding a.d has an ROCE of 7.8%. On its own, that's a low figure but it's around the 6.5% average generated by the Industrials industry.

View our latest analysis for Energoprojekt Holding a.d

Historical performance is a great place to start when researching a stock so above you can see the gauge for Energoprojekt Holding a.d's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Energoprojekt Holding a.d, check out these free graphs here.

What Does the ROCE Trend For Energoprojekt Holding a.d Tell Us?

Energoprojekt Holding a.d is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 88% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 33%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Energoprojekt Holding a.d has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Energoprojekt Holding a.d's ROCE

To bring it all together, Energoprojekt Holding a.d has done well to increase the returns it's generating from its capital employed. Although the company may be facing some issues elsewhere since the stock has plunged 75% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

Energoprojekt Holding a.d does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

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.

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.