There's Been No Shortage Of Growth Recently For Empresas Copec's (SNSE:COPEC) Returns On Capital

By
Simply Wall St
Published
September 14, 2021
SNSE:COPEC
Source: Shutterstock

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. 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. Speaking of which, we noticed some great changes in Empresas Copec's (SNSE:COPEC) returns on capital, so let's have a look.

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 Empresas Copec, this is the formula:

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

0.072 = US$1.6b ÷ (US$25b - US$3.2b) (Based on the trailing twelve months to June 2021).

Therefore, Empresas Copec has an ROCE of 7.2%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 9.2%.

See our latest analysis for Empresas Copec

roce
SNSE:COPEC Return on Capital Employed September 14th 2021

In the above chart we have measured Empresas Copec's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.2%. The amount of capital employed has increased too, by 21%. So we're very much inspired by what we're seeing at Empresas Copec thanks to its ability to profitably reinvest capital.

The Bottom Line On Empresas Copec's ROCE

To sum it up, Empresas Copec has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 25% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a final note, we found 2 warning signs for Empresas Copec (1 can't be ignored) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.
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