Slowing Rates Of Return At Revoil (ATH:REVOIL) Leave Little Room For Excitement

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Revoil's (ATH:REVOIL) trend of ROCE, we liked what we saw.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Revoil is:

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

0.13 = €6.6m ÷ (€109m - €58m) (Based on the trailing twelve months to December 2021).

Therefore, Revoil has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Oil and Gas industry average of 11% it's much better.

Check out our latest analysis for Revoil

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

What Does the ROCE Trend For Revoil Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 55% more capital in the last five years, and the returns on that capital have remained stable at 13%. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, Revoil has done well to reduce current liabilities to 53% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

What We Can Learn From Revoil's ROCE

To sum it up, Revoil has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 179% 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.

If you'd like to know more about Revoil, we've spotted 2 warning signs, and 1 of them is potentially serious.

While Revoil may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.