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Eneco Energy (SGX:R14) Is Doing The Right Things To Multiply Its Share Price

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Eneco Energy (SGX:R14) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Eneco Energy is:

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

0.029 = S$682k ÷ (S$31m - S$7.9m) (Based on the trailing twelve months to June 2023).

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Thus, Eneco Energy has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 7.6%.

View our latest analysis for Eneco Energy

roce
SGX:R14 Return on Capital Employed December 20th 2023

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

So How Is Eneco Energy's ROCE Trending?

We're delighted to see that Eneco Energy is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital five years ago. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 70%. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

On a related note, the company's ratio of current liabilities to total assets has decreased to 25%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line

In summary, it's great to see that Eneco Energy has been able to turn things around and earn higher returns on lower amounts of capital. Although the company may be facing some issues elsewhere since the stock has plunged 90% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

One more thing: We've identified 4 warning signs with Eneco Energy (at least 1 which is a bit concerning) , and understanding them would certainly be useful.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.