If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Fintel Energija a.d (BELEX:FINT), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What is it?
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. Analysts use this formula to calculate it for Fintel Energija a.d:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.049 = дин578m ÷ (дин14b - дин2.2b) (Based on the trailing twelve months to June 2020).
Thus, Fintel Energija a.d has an ROCE of 4.9%. In absolute terms, that's a low return but it's around the Renewable Energy industry average of 5.8%.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Fintel Energija a.d's ROCE against it's prior returns. If you're interested in investigating Fintel Energija a.d's past further, check out this free graph of past earnings, revenue and cash flow.
What Can We Tell From Fintel Energija a.d's ROCE Trend?
There are better returns on capital out there than what we're seeing at Fintel Energija a.d. Over the past four years, ROCE has remained relatively flat at around 4.9% and the business has deployed 755% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
On a side note, Fintel Energija a.d has done well to reduce current liabilities to 16% of total assets over the last four years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.
What We Can Learn From Fintel Energija a.d's ROCE
In summary, Fintel Energija a.d has simply been reinvesting capital and generating the same low rate of return as before. Additionally, the stock's total return to shareholders over the last year has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
On a final note, we found 2 warning signs for Fintel Energija a.d (1 shouldn't be ignored) you should be aware of.
While Fintel Energija a.d 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. 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.
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