Schoeller-Bleckmann Oilfield Equipment (VIE:SBO) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Schoeller-Bleckmann Oilfield Equipment (VIE:SBO) so let's look a bit deeper.

What is 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. The formula for this calculation on Schoeller-Bleckmann Oilfield Equipment is:

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

0.027 = €15m ÷ (€786m - €217m) (Based on the trailing twelve months to September 2021).

So, Schoeller-Bleckmann Oilfield Equipment has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 5.6%.

Check out 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.

The Trend Of ROCE

Schoeller-Bleckmann Oilfield Equipment has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 2.7% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. 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. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 28% of its operations, which isn't ideal. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

Our Take On Schoeller-Bleckmann Oilfield Equipment's ROCE

As discussed above, Schoeller-Bleckmann Oilfield Equipment appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Astute investors may have an opportunity here because the stock has declined 52% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

While Schoeller-Bleckmann Oilfield Equipment looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SBO is currently trading for a fair price.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.