Returns On Capital - An Important Metric For Federal Grid Company of Unified Energy System (MCX:FEES)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Federal Grid Company of Unified Energy System (MCX:FEES) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Federal Grid Company of Unified Energy System is:

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

0.079 = ₽99b ÷ (₽1.3t - ₽68b) (Based on the trailing twelve months to September 2020).

Thus, Federal Grid Company of Unified Energy System has an ROCE of 7.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.7%.

View our latest analysis for Federal Grid Company of Unified Energy System

Above you can see how the current ROCE for Federal Grid Company of Unified Energy System compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Federal Grid Company of Unified Energy System.

What Does the ROCE Trend For Federal Grid Company of Unified Energy System Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 7.9%. The amount of capital employed has increased too, by 41%. 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 Federal Grid Company of Unified Energy System's ROCE

To sum it up, Federal Grid Company of Unified Energy System has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 441% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Federal Grid Company of Unified Energy System, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.

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