Investors Will Want Schoeller-Bleckmann Oilfield Equipment's (VIE:SBO) Growth In ROCE To Persist

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Schoeller-Bleckmann Oilfield Equipment's (VIE:SBO) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Schoeller-Bleckmann Oilfield Equipment:

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

0.12 = €73m ÷ (€942m - €306m) (Based on the trailing twelve months to September 2022).

Thus, Schoeller-Bleckmann Oilfield Equipment has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 7.1% generated by the Energy Services industry.

View our latest analysis for Schoeller-Bleckmann Oilfield Equipment

Above you can see how the current ROCE for Schoeller-Bleckmann Oilfield Equipment compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Schoeller-Bleckmann Oilfield Equipment's ROCE Trend?

We're delighted to see that Schoeller-Bleckmann Oilfield Equipment is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 12%, which is always encouraging. While returns have increased, the amount of capital employed by Schoeller-Bleckmann Oilfield Equipment 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. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 32% of its operations, which isn't ideal. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

The Bottom Line On Schoeller-Bleckmann Oilfield Equipment's ROCE

To bring it all together, Schoeller-Bleckmann Oilfield Equipment has done well to increase the returns it's generating from its capital employed. Given the stock has declined 25% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

Schoeller-Bleckmann Oilfield Equipment does have some risks though, and we've spotted 1 warning sign for Schoeller-Bleckmann Oilfield Equipment that you might be interested in.

While Schoeller-Bleckmann Oilfield Equipment 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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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.