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Will Enero Group's (ASX:EGG) Growth In ROCE Persist?

Simply Wall St
·3 min read

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Enero Group (ASX:EGG) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Enero Group, this is the formula:

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

0.15 = AU$23m ÷ (AU$215m - AU$68m) (Based on the trailing twelve months to June 2020).

So, Enero Group has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 4.8% generated by the Media industry.

Check out our latest analysis for Enero Group

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roce

In the above chart we have measured Enero Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Enero Group here for free.

How Are Returns Trending?

Investors would be pleased with what's happening at Enero Group. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 25%. So we're very much inspired by what we're seeing at Enero Group thanks to its ability to profitably reinvest capital.

Our Take On Enero Group's ROCE

All in all, it's terrific to see that Enero Group is reaping the rewards from prior investments and is growing its capital base. And a remarkable 139% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Enero Group and understanding it should be part of your investment process.

While Enero Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

This article by Simply Wall St is general in nature. 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.

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