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Finding a business with substantial growth potential is not easy, but it’s possible when you look at some key financial metrics.Usually we would like to notice growth trends return Employed capital (Roce) and in addition, expand base of capital employed. Simply put, these types of businesses are compounding machines. This means that you are continually reinvesting your earnings at a constant rate of return.However, when I looked into it, edison power europe (VTX:ESUN), I don’t think the current trend fits the multibagger mold.
About Return on Capital Employed (ROCE)
To clarify if you are unclear, Roce is a metric for evaluating the amount of pre-tax income (as a percentage) that a company is earning on the capital invested in the business. To calculate this metric for Edisun Power Europe, this is the formula:
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.023 = 8.2 m Swiss Franc ÷ (385 m Swiss Franc – 24 m Swiss Franc) (Based on 12 months ending June 2023).
therefore, Edisun Power Europe’s ROCE is 2.3%. In absolute terms, it is a low return and also does not perform the average of 6.6% for the renewable energy industry.
See our latest analysis for Edisun Power Europe
In the chart above, we measured against Edisun Power Europe’s previous Roce’s previous performance, but the future is arguably more important. If you want to see what analysts are predicting for the future, check out our free analyst report for Edisun Power Europe.
So, how is Edisun Power Europe’s ROCE trending?
As for Edisun Power Europe’s historic Roce move, this trend is not great. About five years ago, the return on equity was 4.6%, but it has since fallen to 2.3%. However, Edisun Power Europe appears to be reinvesting for long-term growth. It’s worth keeping an eye on the company’s earnings going forward to see if these investments ultimately contribute to its bottom line.
Our view on Edisun Power Europe’s ROCE
In conclusion, we find that Edisun Power Europe is reinvesting in its business, but with diminishing returns. And with the stock returning just 33% to shareholders over the past five years, you could argue they’re aware of these lackluster trends. As a result, if you’re looking for a multibagger, we think you’ll have better luck elsewhere.
If you want to know about the risks facing Edisun Power Europe, we have discovered 1 warning sign What you need to know.
Edisun Power Europe doesn’t have the best returns, but check this out free A list of companies that earn fairly high returns with solid balance sheets.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
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