Shareholders Would Enjoy A Repeat Of Borouge's (ADX:BOROUGE) Recent Growth In Returns

Did you know there are some financial metrics that can provide clues of a potential 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. So when we looked at the ROCE trend of Borouge (ADX:BOROUGE) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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 Borouge is:

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

0.25 = US$1.9b ÷ (US$8.6b - US$1.2b) (Based on the trailing twelve months to September 2024).

Thus, Borouge has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 7.8%.

See our latest analysis for Borouge

In the above chart we have measured Borouge's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Borouge .

What Does the ROCE Trend For Borouge Tell Us?

Borouge has not disappointed with their ROCE growth. The figures show that over the last two years, ROCE has grown 27% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Borouge's ROCE

As discussed above, Borouge appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 9.7% return over the last year. In light of that, we think it's worth looking further into this stock because if Borouge can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for Borouge that we think you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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.