Returns On Capital Are Showing Encouraging Signs At Federal Hydro-Generating Company - RusHydro (MCX:HYDR)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Federal Hydro-Generating Company - RusHydro (MCX:HYDR) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Federal Hydro-Generating Company - RusHydro:

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

0.12 = ₽92b ÷ (₽942b - ₽148b) (Based on the trailing twelve months to December 2020).

Therefore, Federal Hydro-Generating Company - RusHydro has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electric Utilities industry average of 9.8%.

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 Does the ROCE Trend For Federal Hydro-Generating Company - RusHydro Tell Us?

Federal Hydro-Generating Company - RusHydro has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 115% over the last five years. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Federal Hydro-Generating Company - RusHydro's ROCE

In summary, we're delighted to see that Federal Hydro-Generating Company - RusHydro has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 63% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Federal Hydro-Generating Company - RusHydro does have some risks though, and we've spotted 3 warning signs for Federal Hydro-Generating Company - RusHydro that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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