Oil and Gas Exploration and Production AD (BUL:NGAZ) Hasn't Managed To Accelerate Its Returns

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Oil and Gas Exploration and Production AD (BUL:NGAZ) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

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 Oil and Gas Exploration and Production AD:

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

0.023 = лв2.2m ÷ (лв117m - лв23m) (Based on the trailing twelve months to December 2022).

Therefore, Oil and Gas Exploration and Production AD has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 15%.

Check out our latest analysis for Oil and Gas Exploration and Production AD

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Oil and Gas Exploration and Production AD's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Oil and Gas Exploration and Production AD's ROCE Trend?

Over the past five years, Oil and Gas Exploration and Production AD's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Oil and Gas Exploration and Production AD to be a multi-bagger going forward.

What We Can Learn From Oil and Gas Exploration and Production AD's ROCE

In summary, Oil and Gas Exploration and Production AD isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 23% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing: We've identified 4 warning signs with Oil and Gas Exploration and Production AD (at least 2 which can't be ignored) , and understanding these would certainly be useful.

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.