Investors will want Inter RAO UES (MCX: IRAO) ROCE growth to persist
What trends should we look for if we are to identify stocks that can multiply in value over the long term? A common approach is to try to find a business with Return on capital employed (ROCE) which increases, in connection with growth amount capital employed. If you see this, it usually means it’s a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we have noticed some big changes in Inter RAO UES ‘ (MCX: IRAO) returns on capital, so let’s take a look.
Understanding Return on Capital Employed (ROCE)
If you’ve never worked with ROCE before, it measures the “return” (profit before tax) that a business generates on capital employed in its business. The formula for this calculation on Inter RAO UES is:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.14 = ₽104b ÷ (₽910b – ₽142b) (Based on the last twelve months up to June 2021).
So, Inter RAO UES has a ROCE of 14%. In absolute terms, this is a satisfactory performance, but compared to the electric utility sector average of 8.5%, it is much better.
See our latest review for Inter RAO UES
In the graph above, we measured Inter RAO UES ‘past ROCE against its past performance, but the future is arguably more important. If you’d like to see what analysts are forecasting for the future, you should check out our free report for Inter RAO UES.
How are the returns evolving?
Inter RAO UES shows positive trends. Data shows that returns on capital have increased dramatically over the past five years to reach 14%. Basically the business is making more per dollar of capital invested and on top of that 70% more capital is also being used now. Increasing returns on an increasing amount of capital are common among multi-baggers and that is why we are impressed.
Our opinion on the ROCE of Inter RAO UES
Overall, it is great to see that Inter RAO UES is reaping the rewards of past investments and increasing its capital base. And investors seem to expect more of that in the future, as the stock has rewarded shareholders with an 86% return over the past five years. So, given that the stock has proven to have some promising trends, it is worth doing more research on the company to see if these trends are likely to continue.
Inter RAO UES involves risks, we have noticed 2 warning signs (and 1 which makes us a little uncomfortable) we think you should be aware of.
While Inter RAO UES does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. Check it out free list here.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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