If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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, RWE (ETR:RWE) looks quite promising in regards to its trends of return on capital.

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What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for RWE:

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

0.096 = €6.8b ÷ (€98b - €28b) (Based on the trailing twelve months to December 2024).

Thus, RWE has an ROCE of 9.6%.  Even though it's in line with the industry average of 9.6%, it's still a low return by itself.

View our latest analysis for RWE XTRA:RWE Return on Capital Employed April 17th 2025

Above you can see how the current ROCE for RWE compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering RWE  for free.

So How Is RWE's ROCE Trending?

We're delighted to see that RWE is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 9.6% on its capital. In addition to that, RWE is employing 60% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line

To the delight of most shareholders, RWE has now broken into profitability. And with a respectable 59% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if RWE can keep these trends up, it could have a bright future ahead.

Story Continues

RWE does have some risks, we noticed  3 warning signs  (and 2 which are potentially serious)  we think you should know about.

While RWE 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 freelist here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

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