Are Motor Oil (Hellas) Corinth Refineries S.A.’s (ATH:MOH) High Returns Really That Great?

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Today we’ll evaluate Motor Oil (Hellas) Corinth Refineries S.A. (ATH:MOH) to determine whether it could have potential as an investment idea. In particular, we’ll consider its Return On Capital Employed (ROCE), as that can give us insight into how profitably the company is able to employ capital in its business.

First of all, we’ll work out how to calculate ROCE. Then we’ll compare its ROCE to similar companies. Last but not least, we’ll look at what impact its current liabilities have on its ROCE.

Understanding Return On Capital Employed (ROCE)

ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. All else being equal, a better business will have a higher ROCE. In brief, it is a useful tool, but it is not without drawbacks. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since ‘No two businesses are exactly alike.’

How Do You Calculate Return On Capital Employed?

The formula for calculating the return on capital employed is:

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

Or for Motor Oil (Hellas) Corinth Refineries:

0.21 = €484m ÷ (€3.2b – €922m) (Based on the trailing twelve months to March 2019.)

So, Motor Oil (Hellas) Corinth Refineries has an ROCE of 21%.

View our latest analysis for Motor Oil (Hellas) Corinth Refineries

Does Motor Oil (Hellas) Corinth Refineries Have A Good ROCE?

ROCE is commonly used for comparing the performance of similar businesses. In our analysis, Motor Oil (Hellas) Corinth Refineries’s ROCE is meaningfully higher than the 10% average in the Oil and Gas industry. We would consider this a positive, as it suggests it is using capital more effectively than other similar companies. Regardless of where Motor Oil (Hellas) Corinth Refineries sits next to its industry, its ROCE in absolute terms appears satisfactory, and this company could be worth a closer look.

ATSE:MOH Past Revenue and Net Income, July 1st 2019
ATSE:MOH Past Revenue and Net Income, July 1st 2019

Remember that this metric is backwards looking – it shows what has happened in the past, and does not accurately predict the future. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. ROCE is only a point-in-time measure. We note Motor Oil (Hellas) Corinth Refineries could be considered a cyclical business. Since the future is so important for investors, you should check out our free report on analyst forecasts for Motor Oil (Hellas) Corinth Refineries.

What Are Current Liabilities, And How Do They Affect Motor Oil (Hellas) Corinth Refineries’s ROCE?

Short term (or current) liabilities, are things like supplier invoices, overdrafts, or tax bills that need to be paid within 12 months. Due to the way the ROCE equation works, having large bills due in the near term can make it look as though a company has less capital employed, and thus a higher ROCE than usual. To check the impact of this, we calculate if a company has high current liabilities relative to its total assets.

Motor Oil (Hellas) Corinth Refineries has total assets of €3.2b and current liabilities of €922m. Therefore its current liabilities are equivalent to approximately 29% of its total assets. Low current liabilities are not boosting the ROCE too much.

Our Take On Motor Oil (Hellas) Corinth Refineries’s ROCE

Overall, Motor Oil (Hellas) Corinth Refineries has a decent ROCE and could be worthy of further research. There might be better investments than Motor Oil (Hellas) Corinth Refineries out there, but you will have to work hard to find them . These promising businesses with rapidly growing earnings might be right up your alley.

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We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.