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

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Dana Gas PJSC (ADX:DANA) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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)

0.069 = US$176m ÷ (US$2.8b - US$239m) (Based on the trailing twelve months to December 2023).

Therefore, Dana Gas PJSC has an ROCE of 6.9%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 11%.

Check out our latest analysis for Dana Gas PJSC

In the above chart we have measured Dana Gas PJSC's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Dana Gas PJSC for free.

What Does the ROCE Trend For Dana Gas PJSC Tell Us?

Shareholders will be relieved that Dana Gas PJSC has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 6.9% on its capital. While returns have increased, the amount of capital employed by Dana Gas PJSC has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Bottom Line On Dana Gas PJSC's ROCE

As discussed above, Dana Gas PJSC appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Dana Gas PJSC does have some risks though, and we've spotted 1 warning sign for Dana Gas PJSC that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.