Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Eneco Energy (SGX:R14) and its trend of ROCE, we really liked what we saw.
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from 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)
0.017 = S$438k ÷ (S$37m – S$11m) (Based on the trailing twelve months to December 2024).
Therefore, Eneco Energy has an ROCE of 1.7%. In absolute terms, that’s a low return and it also under-performs the Logistics industry average of 3.9%.
View our latest analysis for Eneco Energy
SGX:R14 Return on Capital Employed February 16th 2025
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’d like to look at how Eneco Energy has performed in the past in other metrics, you can view this free graph of Eneco Energy’s past earnings, revenue and cash flow.
Eneco Energy has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it’s earning 1.7% which is a sight for sore eyes. Not only that, but the company is utilizing 191% more capital than before, but that’s to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
One more thing to note, Eneco Energy has decreased current liabilities to 29% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.
To the delight of most shareholders, Eneco Energy has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 61% in the last five years. That being the case, research into the company’s current valuation metrics and future prospects seems fitting.
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