CNOOC Energy Technology & Services (SHSE:600968) Is Experiencing Growth In Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 CNOOC Energy Technology & Services (SHSE:600968) so let's look a bit deeper.

Understanding 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. Analysts use this formula to calculate it for CNOOC Energy Technology & Services:

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

0.13 = CN¥3.9b ÷ (CN¥46b - CN¥16b) (Based on the trailing twelve months to September 2024).

Thus, CNOOC Energy Technology & Services has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Energy Services industry average of 5.2% it's much better.

View our latest analysis for CNOOC Energy Technology & Services

In the above chart we have measured CNOOC Energy Technology & Services' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for CNOOC Energy Technology & Services .

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at CNOOC Energy Technology & Services. The data shows that returns on capital have increased substantially over the last five years to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 56% 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.

What We Can Learn From CNOOC Energy Technology & Services' ROCE

In summary, it's great to see that CNOOC Energy Technology & Services can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 70% return over the last five years. In light of that, we think it's worth looking further into this stock because if CNOOC Energy Technology & Services can keep these trends up, it could have a bright future ahead.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for 600968 on our platform that is definitely worth checking out.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.