Returns On Capital Are Showing Encouraging Signs At CNOOC Energy Technology & Services (SHSE:600968)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at CNOOC Energy Technology & Services (SHSE:600968) so let's look a bit deeper.

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

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 CNOOC Energy Technology & Services, this is the formula:

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

0.12 = CN¥3.4b ÷ (CN¥42b - CN¥13b) (Based on the trailing twelve months to March 2024).

Thus, CNOOC Energy Technology & Services has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Energy Services industry average of 6.5% it's much better.

See 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, you can check out the forecasts from the analysts covering CNOOC Energy Technology & Services for free.

The Trend Of ROCE

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 12%. The amount of capital employed has increased too, by 78%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

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 with a respectable 70% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, CNOOC Energy Technology & Services does come with some risks, and we've found 1 warning sign that you should be aware of.

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.

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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.