The Return Trends At Jutal Offshore Oil Services (HKG:3303) Look Promising

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Jutal Offshore Oil Services (HKG:3303) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Jutal Offshore Oil Services is:

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

0.061 = CN¥173m ÷ (CN¥4.6b - CN¥1.8b) (Based on the trailing twelve months to December 2020).

Therefore, Jutal Offshore Oil Services has an ROCE of 6.1%. In absolute terms, that's a low return, but it's much better than the Energy Services industry average of 4.2%.

See our latest analysis for Jutal Offshore Oil Services

Historical performance is a great place to start when researching a stock so above you can see the gauge for Jutal Offshore Oil Services' ROCE against it's prior returns. If you'd like to look at how Jutal Offshore Oil Services has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Jutal Offshore Oil Services Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 6.1%. The amount of capital employed has increased too, by 135%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 38% of its operations, which isn't ideal. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Bottom Line On Jutal Offshore Oil Services' ROCE

To sum it up, Jutal Offshore Oil Services has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 196% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Jutal Offshore Oil Services does come with some risks, and we've found 2 warning signs that you should be aware of.

While Jutal Offshore Oil Services 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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