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

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Jutal Offshore Oil Services (HKG:3303) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Jutal Offshore Oil Services:

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

0.036 = CN¥77m ÷ (CN¥3.2b - CN¥1.0b) (Based on the trailing twelve months to June 2023).

So, Jutal Offshore Oil Services has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 7.9%.

Check out 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're interested in investigating Jutal Offshore Oil Services' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While there are companies with higher returns on capital out there, we still find the trend at Jutal Offshore Oil Services promising. The figures show that over the last five years, ROCE has grown 37% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Jutal Offshore Oil Services' ROCE

To bring it all together, Jutal Offshore Oil Services has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 20% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Jutal Offshore Oil Services (of which 1 is a bit concerning!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.