Returns At Athabasca Oil (TSE:ATH) Are On The Way Up

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. So on that note, Athabasca Oil (TSE:ATH) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Athabasca Oil, this is the formula:

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

0.097 = CA$191m ÷ (CA$2.2b - CA$196m) (Based on the trailing twelve months to June 2023).

Therefore, Athabasca Oil has an ROCE of 9.7%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 13%.

See 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 here for free.

So How Is Athabasca Oil's ROCE Trending?

Shareholders will be relieved that Athabasca Oil has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 9.7% on its capital. While returns have increased, the amount of capital employed by Athabasca Oil 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. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line On Athabasca Oil's ROCE

To bring it all together, Athabasca Oil has done well to increase the returns it's generating from its capital employed. And a remarkable 183% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 1 warning sign with Athabasca Oil 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.