Return trends at SFC Energy (ETR: F3C) look promising


If we are to find multi-bagger potential, there are often underlying trends that can provide clues. Among other things, we’ll want to see two things; first, a growth return on capital employed (ROCE) and on the other hand, an expansion of the company 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 SFC Energy’s (ETR: F3C) returns equity, so let’s take a look.

What is Return on Capital Employed (ROCE)?

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. To calculate this metric for SFC Energy, here is the formula:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.013 = 857 K € ÷ (90 M € – 24 M €) (Based on the last twelve months up to March 2021).

Therefore, SFC Energy has a ROCE of 1.3%. In absolute terms, this is low efficiency and it also underperforms the electrical industry average by 12%.

See our latest analysis for SFC Energy

XTRA: F3C Return on Capital Employed May 27, 2021

Above you can see how SFC Energy’s current ROCE compares to its past returns on capital, but you can’t say more about the past. If you’d like to see what analysts are forecasting for the future, you should check out our free report for SFC Energy.

So what is SFC Energy’s ROCE trend?

The fact that SFC Energy is now generating pre-tax profits on its previous investments is very encouraging. Shareholders would no doubt be delighted because the company was in deficit five years ago but now generates 1.3% of its capital. On top of that, SFC Energy employs 181% more capital than before, which is expected of a company trying to break into profitability. This may indicate that there are many opportunities to invest capital internally and at ever higher rates, two common characteristics of a multi-bagger.

In conclusion…

Overall, SFC Energy gets a big tick from us thanks in large part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 554% total return over the past five years tells us that investors expect more good things to happen in the future. That being said, we still believe that promising fundamentals mean the company deserves additional due diligence.

If you want to continue your research on SFC Energy, you may want to know more about the 2 warning signs that our analysis found.

Although SFC Energy does not achieve the highest efficiency, take a look at this free list of companies that achieve high returns on their equity with strong balance sheets.

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This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. We aim 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 information. Simply Wall St has no position in any of the stocks mentioned.
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