Returns On Capital At Elektro Gorenjska d. d (LJSE:EGKG) Have Stalled

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Elektro Gorenjska d. d (LJSE:EGKG), it didn't seem to tick all of these boxes.

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 Elektro Gorenjska d. d is:

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

0.037 = €8.7m ÷ (€252m - €18m) (Based on the trailing twelve months to December 2021).

Thus, Elektro Gorenjska d. d has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 6.0%.

See our latest analysis for Elektro Gorenjska d. d

Historical performance is a great place to start when researching a stock so above you can see the gauge for Elektro Gorenjska d. d's ROCE against it's prior returns. If you're interested in investigating Elektro Gorenjska d. d's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Elektro Gorenjska d. d Tell Us?

There hasn't been much to report for Elektro Gorenjska d. d's returns and its level of capital employed because both metrics have been steady for the past three years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Elektro Gorenjska d. d doesn't end up being a multi-bagger in a few years time.

Our Take On Elektro Gorenjska d. d's ROCE

In summary, Elektro Gorenjska d. d isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last year, the stock has given away 31% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Elektro Gorenjska d. d does have some risks, we noticed 4 warning signs (and 1 which is a bit concerning) we think you should know about.

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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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.