share_log

Geo-Jade Petroleum (SHSE:600759) Hasn't Managed To Accelerate Its Returns

Simply Wall St ·  09/28/2023 06:27

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Geo-Jade Petroleum (SHSE:600759) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Geo-Jade Petroleum is:

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

0.10 = CN¥864m ÷ (CN¥13b - CN¥4.8b) (Based on the trailing twelve months to June 2023).

Therefore, Geo-Jade Petroleum has an ROCE of 10%. In absolute terms, that's a pretty standard return but compared to the Oil and Gas industry average it falls behind.

View our latest analysis for Geo-Jade Petroleum

roce
SHSE:600759 Return on Capital Employed September 27th 2023

Historical 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're interested in investigating Geo-Jade Petroleum's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Geo-Jade Petroleum Tell Us?

Over the past five years, Geo-Jade Petroleum's ROCE has remained relatively flat while the business is using 25% less capital than before. This indicates to us that assets are being sold and thus the business is likely shrinking, which you'll remember isn't the typical ingredients for an up-and-coming multi-bagger. You could assume that if this continues, the business will be smaller in a few year time, so probably not a multi-bagger.

The Bottom Line On Geo-Jade Petroleum's ROCE

Overall, we're not ecstatic to see Geo-Jade Petroleum reducing the amount of capital it employs in the business. Since the stock has gained an impressive 28% over the last three years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know about the risks facing Geo-Jade Petroleum, we've discovered 1 warning sign that you should be aware of.

While Geo-Jade Petroleum isn't earning the highest return, check out this free list of companies that are 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.

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Read more
    Write a comment