Stock Analysis

Motor Oil (Hellas) Corinth Refineries' (ATH:MOH) Returns On Capital Not Reflecting Well On The Business

ATSE:MOH
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Motor Oil (Hellas) Corinth Refineries (ATH:MOH), they do have a high ROCE, but we weren't exactly elated from how returns are trending.

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 Motor Oil (Hellas) Corinth Refineries is:

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

0.22 = €1.2b ÷ (€7.7b - €2.1b) (Based on the trailing twelve months to September 2023).

Therefore, Motor Oil (Hellas) Corinth Refineries has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

Check out our latest analysis for Motor Oil (Hellas) Corinth Refineries

roce
ATSE:MOH Return on Capital Employed December 13th 2023

Above you can see how the current ROCE for Motor Oil (Hellas) Corinth Refineries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Motor Oil (Hellas) Corinth Refineries here for free.

What The Trend Of ROCE Can Tell Us

In terms of Motor Oil (Hellas) Corinth Refineries' historical ROCE movements, the trend isn't fantastic. Historically returns on capital were even higher at 28%, but they have dropped over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Key Takeaway

From the above analysis, we find it rather worrisome that returns on capital and sales for Motor Oil (Hellas) Corinth Refineries have fallen, meanwhile the business is employing more capital than it was five years ago. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 49% return. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Motor Oil (Hellas) Corinth Refineries does have some risks, we noticed 2 warning signs (and 1 which is potentially serious) we think you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether Motor Oil (Hellas) Corinth Refineries is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.