Federal Hydro-Generating Company - RusHydro (MCX:HYDR) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Federal Hydro-Generating Company - RusHydro (MCX:HYDR) looks quite promising in regards to its trends of return on capital.

Understanding 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. To calculate this metric for Federal Hydro-Generating Company - RusHydro, this is the formula:

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

0.11 = ₽89b ÷ (₽946b - ₽151b) (Based on the trailing twelve months to March 2021).

Thus, Federal Hydro-Generating Company - RusHydro has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.5% generated by the Electric Utilities industry.

Check out our latest analysis for Federal Hydro-Generating Company - RusHydro

Above you can see how the current ROCE for Federal Hydro-Generating Company - RusHydro 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 Hydro-Generating Company - RusHydro.

What Can We Tell From Federal Hydro-Generating Company - RusHydro's ROCE Trend?

Federal Hydro-Generating Company - RusHydro's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 82% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

To sum it up, Federal Hydro-Generating Company - RusHydro is collecting higher returns from the same amount of capital, and that's impressive. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 41% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 3 warning signs facing Federal Hydro-Generating Company - RusHydro that you might find interesting.

While Federal Hydro-Generating Company - RusHydro 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. 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.
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