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

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. 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)?

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 Federal Grid Company of Unified Energy System:

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

0.065 = ₽83b ÷ (₽1.4t - ₽81b) (Based on the trailing twelve months to March 2021).

Thus, Federal Grid Company of Unified Energy System has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Electric Utilities industry average of 8.9%.

Check out 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Federal Grid Company of Unified Energy System's ROCE Trending?

The returns on capital haven't changed much for Federal Grid Company of Unified Energy System in recent years. The company has consistently earned 6.5% for the last five years, and the capital employed within the business has risen 38% 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.

What We Can Learn From Federal Grid Company of Unified Energy System's ROCE

Long story short, while Federal Grid Company of Unified Energy System has been reinvesting its capital, the returns that it's generating haven't increased. Although the market must be expecting these trends to improve because the stock has gained 99% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

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.

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