There's Been No Shortage Of Growth Recently For Serinus Energy's (LON:SENX) 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? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, Serinus Energy (LON:SENX) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Serinus Energy:

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

0.034 = US$2.5m ÷ (US$90m - US$17m) (Based on the trailing twelve months to March 2023).

So, Serinus Energy has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 13%.

View our latest analysis for Serinus Energy

Above you can see how the current ROCE for Serinus Energy compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Serinus Energy.

How Are Returns Trending?

It's great to see that Serinus Energy has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 3.4% which is no doubt a relief for some early shareholders. In regards to capital employed, Serinus Energy is using 21% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. Serinus Energy could be selling under-performing assets since the ROCE is improving.

In Conclusion...

In a nutshell, we're pleased to see that Serinus Energy has been able to generate higher returns from less capital. And since the stock has dived 98% over the last five years, there may be other factors affecting the company's prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

One more thing: We've identified 2 warning signs with Serinus Energy (at least 1 which is a bit concerning) , and understanding them would certainly be useful.

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.