We Like These Underlying Return On Capital Trends At Flint (TSE:FLNT)

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Flint (TSE:FLNT) so let's look a bit deeper.

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. The formula for this calculation on Flint is:

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

0.046 = CA$7.6m ÷ (CA$247m - CA$84m) (Based on the trailing twelve months to September 2022).

Thus, Flint has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 8.4%.

Check out our latest analysis for Flint

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 Flint's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Flint Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 4.6%. The amount of capital employed has increased too, by 62%. So we're very much inspired by what we're seeing at Flint thanks to its ability to profitably reinvest capital.

In Conclusion...

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 47% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Flint does have some risks, we noticed 4 warning signs (and 3 which shouldn't be ignored) we think you should know about.

While Flint isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.