If you’re looking for a multi-bagger, there are a few things to watch out for. Typically, we will want to notice a growth trend to return to on capital employed (ROCE) and at the same time, a base capital employed. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. Speaking of which, we’ve noticed big changes in Schoeller-Bleckmann Oilfield Equipment (LIFE:SBO) returns on capital, so let’s take a look.
Return on capital employed (ROCE): what is it?
For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. The formula for this calculation on Schoeller-Bleckmann Oilfield Equipment is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.029 = €17m ÷ (€806m – €224m) (Based on the last twelve months to December 2021).
Thereby, Schoeller-Bleckmann Oilfield Equipment has a ROCE of 2.9%. Ultimately, that’s a poor performer, and it’s below the energy services industry average of 5.1%.
Check out our latest review for Schoeller-Bleckmann Oilfield Equipment
Above, you can see how Schoeller-Bleckmann Oilfield Equipment’s current ROCE compares to its past returns on capital, but you can’t tell much about the past. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.
The ROCE trend
Schoeller-Bleckmann Oilfield Equipment has stormed into the dark (profitability) and we’re sure it’s a sight for sore eyes. While the company was unprofitable in the past, it has now turned things around and is earning 2.9% on its capital. Interestingly, the capital employed by the business has remained relatively stable, so these higher returns either come from paying off past investments or from increased efficiency. So while we’re glad the business is more efficient, just keep in mind that this could mean that going forward the business will run out of areas to invest in internally for growth. So if you’re looking for high growth, you’ll want to see a company’s capital employed grow as well.
By the way, we noticed that the improvement in ROCE seems to be partly fueled by an increase in current liabilities. In effect, this means that suppliers or short-term creditors now finance 28% of the activity, which is more than five years ago. It’s worth keeping an eye on this because as the percentage of current liabilities to total assets increases, certain aspects of risk also increase.
In summary, we are pleased to see that Schoeller-Bleckmann Oilfield Equipment has been able to increase efficiency and achieve higher rates of return for the same amount of capital. And given that the stock has remained fairly stable over the past five years, there could be an opportunity here if other metrics are strong. With that in mind, we believe the promising trends warrant further investigation of this stock.
Finally we found 2 warning signs for Schoeller-Bleckmann Oilfield Equipment which we think you should be aware of.
Although Schoeller-Bleckmann Oilfield Equipment does not generate the highest output, check out this free list of companies that achieve high returns on equity with strong balance sheets.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.