Athabasca Oil's (TSE:ATH) Returns On Capital Are Heading Higher

What trends should we look for it we want to identify stocks that can 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Athabasca Oil's (TSE:ATH) returns on capital, so let's have a look.

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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. The formula for this calculation on Athabasca Oil is:

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

0.19 = CA$426m ÷ (CA$2.5b - CA$244m) (Based on the trailing twelve months to December 2024).

So, Athabasca Oil has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Oil and Gas industry.

View our latest analysis for Athabasca Oil

Above you can see how the current ROCE for Athabasca Oil compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Athabasca Oil for free.

The Trend Of ROCE

Athabasca Oil is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 558% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Athabasca Oil's ROCE

To sum it up, Athabasca Oil is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 3,631% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Athabasca Oil can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 2 warning signs we've spotted with Athabasca Oil (including 1 which doesn't sit too well with us) .

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.