Oil Refineries (TLV:ORL) Hasn't Managed To Accelerate Its Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. However, after investigating Oil Refineries (TLV:ORL), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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 Oil Refineries is:

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

0.18 = US$576m ÷ (US$4.6b - US$1.4b) (Based on the trailing twelve months to September 2022).

Therefore, Oil Refineries has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 15% generated by the Oil and Gas industry.

Check out our latest analysis for Oil Refineries

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

What Does the ROCE Trend For Oil Refineries Tell Us?

Over the past five years, Oil Refineries' ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Oil Refineries in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Key Takeaway

In a nutshell, Oil Refineries has been trudging along with the same returns from the same amount of capital over the last five years. And investors appear hesitant that the trends will pick up because the stock has fallen 12% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know more about Oil Refineries, we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.

While Oil Refineries isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.