What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. With that in mind, the ROCE of Golden Energy and Resources (SGX:AUE) looks attractive right now, so lets see what the trend of returns can tell us.

Understanding 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. The formula for this calculation on Golden Energy and Resources is:

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

0.27 = US$1.0b ÷ (US$5.0b - US$1.2b) (Based on the trailing twelve months to June 2022).

Thus, Golden Energy and Resources has an ROCE of 27%. On its own that's a fantastic return on capital, though it's the same as the Oil and Gas industry average of 27%.

Check out our latest analysis for Golden Energy and Resources

Above you can see how the current ROCE for Golden Energy and Resources compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

In terms of Golden Energy and Resources' history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 27% and the business has deployed 686% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

Our Take On Golden Energy and Resources' ROCE

In summary, we're delighted to see that Golden Energy and Resources has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Golden Energy and Resources (of which 1 is significant!) that you should know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.