Here’s What Grenergy Renovables, S.A.’s (BME:GRE) ROCE Can Tell Us
Simply Wall St February 17, 2020
Today we’ll evaluate Grenergy Renovables, S.A. (
BME:GRE) to determine whether it could have potential as an investment idea. Specifically, we’re going to calculate its Return On Capital Employed (ROCE), in the hopes of getting some insight into the business.
Firstly, we’ll go over how we calculate ROCE. Next, we’ll compare it to others in its industry. Then we’ll determine how its current liabilities are affecting its ROCE.
Understanding Return On Capital Employed (ROCE)
ROCE measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. Generally speaking a higher ROCE is better. Overall, it is a valuable metric that has its flaws. Renowned investment researcher Michael Mauboussin
has suggested that a high ROCE can indicate that ‘one dollar invested in the company generates value of more than one dollar’.
So, How Do We Calculate ROCE?
Analysts use this formula to calculate return on capital employed:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
Or for Grenergy Renovables:
0.20 = €12m ÷ (€110m – €47m) (Based on the trailing twelve months to June 2019.)
So,
Grenergy Renovables has an ROCE of 20%.
https://simplywall.st/stocks/es/uti...rgy-renovables-s-a-s-bmegre-roce-can-tell-us/