Is Elinoil Hellenic Petroleum (ATH:ELIN) Likely To Turn Things Around?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. That's why when we briefly looked at Elinoil Hellenic Petroleum's (ATH:ELIN) ROCE trend, we were pretty happy with what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Elinoil Hellenic Petroleum is:

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

0.12 = €7.6m ÷ (€182m - €118m) (Based on the trailing twelve months to June 2020).

So, Elinoil Hellenic Petroleum has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 6.7% generated by the Oil and Gas industry.

View our latest analysis for Elinoil Hellenic Petroleum

Historical performance is a great place to start when researching a stock so above you can see the gauge for Elinoil Hellenic Petroleum's ROCE against it's prior returns. If you're interested in investigating Elinoil Hellenic Petroleum's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Elinoil Hellenic Petroleum's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 28% more capital in the last five years, and the returns on that capital have remained stable at 12%. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Elinoil Hellenic Petroleum's current liabilities are still rather high at 65% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

The main thing to remember is that Elinoil Hellenic Petroleum has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 147% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Elinoil Hellenic Petroleum (of which 2 are a bit unpleasant!) that you should know about.

While Elinoil Hellenic Petroleum 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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