If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Golden Energy and Resources (SGX:AUE) looks great, so lets see what the trend can tell us.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)
0.49 = US$1.7b ÷ (US$4.9b - US$1.4b) (Based on the trailing twelve months to December 2022).
Therefore, Golden Energy and Resources has an ROCE of 49%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 25%.
See our latest analysis for Golden Energy and Resources
SGX:AUE Return on Capital Employed April 28th 2023
Historical performance is a great place to start when researching a stock so above you can see the gauge for Golden Energy and Resources' ROCE against it's prior returns. If you're interested in investigating Golden Energy and Resources' past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
We like the trends that we're seeing from Golden Energy and Resources. Over the last five years, returns on capital employed have risen substantially to 49%. The amount of capital employed has increased too, by 559%. So we're very much inspired by what we're seeing at Golden Energy and Resources thanks to its ability to profitably reinvest capital.
In Conclusion...
All in all, it's terrific to see that Golden Energy and Resources is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 188% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Golden Energy and Resources can keep these trends up, it could have a bright future ahead.
While Golden Energy and Resources looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether AUE is currently trading for a fair price.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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.
