Is There More Growth In Store For Anton Oilfield Services Group's (HKG:3337) Returns On Capital?

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Anton Oilfield Services Group (HKG:3337) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Anton Oilfield Services Group, this is the formula:

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

0.11 = CN¥544m ÷ (CN¥8.9b - CN¥3.8b) (Based on the trailing twelve months to June 2020).

Thus, Anton Oilfield Services Group has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

See our latest analysis for Anton Oilfield Services Group

Above you can see how the current ROCE for Anton Oilfield Services Group 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 Anton Oilfield Services Group here for free.

What Can We Tell From Anton Oilfield Services Group's ROCE Trend?

Anton Oilfield Services Group has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 11% on its capital. In addition to that, Anton Oilfield Services Group is employing 34% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a side note, Anton Oilfield Services Group's current liabilities are still rather high at 43% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

Long story short, we're delighted to see that Anton Oilfield Services Group's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 34% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing: We've identified 3 warning signs with Anton Oilfield Services Group (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

While Anton Oilfield Services Group 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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