Oil and Gas Exploration and Production AD (BUL:NGAZ) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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 Oil and Gas Exploration and Production AD (BUL:NGAZ) so let's look a bit deeper.

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

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 Oil and Gas Exploration and Production AD, this is the formula:

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

0.015 = лв1.4m ÷ (лв115m - лв22m) (Based on the trailing twelve months to September 2022).

Thus, Oil and Gas Exploration and Production AD has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 15%.

See 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 want to delve into the historical earnings, revenue and cash flow of Oil and Gas Exploration and Production AD, check out these free graphs here.

What Does the ROCE Trend For Oil and Gas Exploration and Production AD Tell Us?

Oil and Gas Exploration and Production AD has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 1.5% on its capital. While returns have increased, the amount of capital employed by Oil and Gas Exploration and Production AD has remained flat over the period. 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. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Bottom Line

To bring it all together, Oil and Gas Exploration and Production AD has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 19% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Oil and Gas Exploration and Production AD does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those can't be ignored...

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.

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.