Flint (TSE:FLNT) Is Looking To Continue Growing Its Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So when we looked at Flint (TSE:FLNT) and its trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Flint, this is the formula:

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

0.12 = CA$18m ÷ (CA$261m - CA$105m) (Based on the trailing twelve months to September 2024).

Thus, Flint has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Energy Services industry average of 14%.

View our latest analysis for Flint

Historical performance is a great place to start when researching a stock so above you can see the gauge for Flint's ROCE against it's prior returns. If you're interested in investigating Flint's past further, check out this free graph covering Flint's past earnings, revenue and cash flow.

What Can We Tell From Flint's ROCE Trend?

We like the trends that we're seeing from Flint. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 21% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 40%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

Our Take On Flint's ROCE

To sum it up, Flint has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Astute investors may have an opportunity here because the stock has declined 33% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

On a separate note, we've found 4 warning signs for Flint you'll probably want to know about.

While Flint may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.