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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. 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 Carimin Petroleum Berhad (KLSE:CARIMIN) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
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. Analysts use this formula to calculate it for Carimin Petroleum Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = RM29m ÷ (RM276m - RM79m) (Based on the trailing twelve months to June 2023).
Therefore, Carimin Petroleum Berhad has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 10% generated by the Energy Services industry.
See our latest analysis for Carimin Petroleum Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Carimin Petroleum Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Carimin Petroleum Berhad, check out these free graphs here.
What Can We Tell From Carimin Petroleum Berhad's ROCE Trend?
Shareholders will be relieved that Carimin Petroleum Berhad has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 15% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
What We Can Learn From Carimin Petroleum Berhad's ROCE
To bring it all together, Carimin Petroleum Berhad has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 194% 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 Carimin Petroleum Berhad can keep these trends up, it could have a bright future ahead.