The Returns At Elektro Maribor d.d (LJSE:EMAG) Aren't Growing

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. In light of that, when we looked at Elektro Maribor d.d (LJSE:EMAG) and its ROCE trend, we weren't exactly thrilled.

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

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. To calculate this metric for Elektro Maribor d.d, this is the formula:

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

0.041 = €15m ÷ (€419m - €43m) (Based on the trailing twelve months to December 2019).

So, Elektro Maribor d.d has an ROCE of 4.1%. In absolute terms, that's a low return and it also under-performs the Electric Utilities industry average of 6.6%.

View our latest analysis for Elektro Maribor d.d

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Elektro Maribor d.d's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Elektro Maribor d.d, with its capital employed and returns on that capital staying somewhat the same for the last five 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. With that in mind, unless investment picks up again in the future, we wouldn't expect Elektro Maribor d.d to be a multi-bagger going forward.

In Conclusion...

In a nutshell, Elektro Maribor d.d has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 4.4% to shareholders over the last three years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing Elektro Maribor d.d, we've discovered 2 warning signs that you should be aware of.

While Elektro Maribor d.d isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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