The Return Trends At Schoeller-Bleckmann Oilfield Equipment (VIE:SBO) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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)?

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. To calculate this metric for Schoeller-Bleckmann Oilfield Equipment, this is the formula:

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

0.09 = €53m ÷ (€881m - €293m) (Based on the trailing twelve months to June 2022).

Thus, Schoeller-Bleckmann Oilfield Equipment has an ROCE of 9.0%. In absolute terms, that's a low return, but it's much better than the Energy Services industry average of 7.2%.

Check out our latest analysis for Schoeller-Bleckmann Oilfield Equipment

In the above chart we have measured Schoeller-Bleckmann Oilfield Equipment's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Schoeller-Bleckmann Oilfield Equipment.

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

Shareholders will be relieved that Schoeller-Bleckmann Oilfield Equipment has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 9.0% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

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. The current liabilities has increased to 33% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. 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

To bring it all together, Schoeller-Bleckmann Oilfield Equipment has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 19% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing to note, we've identified 1 warning sign with Schoeller-Bleckmann Oilfield Equipment and understanding this should be part of your investment process.

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.