There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Geo-Jade Petroleum (SHSE:600759) so let's look a bit deeper.
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 Geo-Jade Petroleum:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = CN¥882m ÷ (CN¥14b - CN¥5.4b) (Based on the trailing twelve months to June 2022).
Therefore, Geo-Jade Petroleum has an ROCE of 10%. In isolation, that's a pretty standard return but against the Oil and Gas industry average of 16%, it's not as good.
See our latest analysis for Geo-Jade Petroleum
SHSE:600759 Return on Capital Employed September 7th 2022Historical performance is a great place to start when researching a stock so above you can see the gauge for Geo-Jade Petroleum's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Geo-Jade Petroleum, check out these free graphs here.
The Trend Of ROCE
Geo-Jade Petroleum has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 306% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 23% less capital than it was five years ago. Geo-Jade Petroleum may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
The Bottom Line On Geo-Jade Petroleum's ROCE
In the end, Geo-Jade Petroleum has proven it's capital allocation skills are good with those higher returns from less amount of capital. Astute investors may have an opportunity here because the stock has declined 56% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
On a final note, we've found 1 warning sign for Geo-Jade Petroleum that we think you should be aware of.
While Geo-Jade Petroleum 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 free list 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.