The Returns At Federal Grid Company of Unified Energy System (MCX:FEES) Aren't Growing

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Federal Grid Company of Unified Energy System (MCX:FEES) and its ROCE trend, we weren't exactly thrilled.

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 Federal Grid Company of Unified Energy System is:

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

0.066 = ₽83b ÷ (₽1.3t - ₽84b) (Based on the trailing twelve months to December 2020).

Therefore, Federal Grid Company of Unified Energy System has an ROCE of 6.6%. Ultimately, that's a low return and it under-performs the Electric Utilities industry average of 9.8%.

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

In the above chart we have measured Federal Grid Company of Unified Energy System's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

The returns on capital haven't changed much for Federal Grid Company of Unified Energy System in recent years. The company has consistently earned 6.6% for the last five years, and the capital employed within the business has risen 41% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

As we've seen above, Federal Grid Company of Unified Energy System's returns on capital haven't increased but it is reinvesting in the business. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 207% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know about the risks facing Federal Grid Company of Unified Energy System, we've discovered 1 warning sign that you should be aware of.

While Federal Grid Company of Unified Energy System 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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