The Return Trends At Dana Gas PJSC (ADX:DANA) Look Promising

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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, we've noticed some promising trends at Dana Gas PJSC (ADX:DANA) so let's look a bit deeper.

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 Dana Gas PJSC is:

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

0.024 = US$55m ÷ (US$2.5b - US$205m) (Based on the trailing twelve months to March 2021).

So, Dana Gas PJSC has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 7.8%.

Check out our latest analysis for Dana Gas PJSC

Above you can see how the current ROCE for Dana Gas PJSC compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Dana Gas PJSC.

What The Trend Of ROCE Can Tell Us

It's great to see that Dana Gas PJSC has started to generate some pre-tax earnings from prior investments. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 2.4% on their capital employed. Additionally, the business is utilizing 39% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. This could potentially mean that the company is selling some of its assets.

What We Can Learn From Dana Gas PJSC's ROCE

In summary, it's great to see that Dana Gas PJSC has been able to turn things around and earn higher returns on lower amounts of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 92% return over the last five years. In light of that, we think it's worth looking further into this stock because if Dana Gas PJSC can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 2 warning signs with Dana Gas PJSC (at least 1 which is concerning) , and understanding these would certainly be useful.

While Dana Gas PJSC 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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