Carimin Petroleum Berhad (KLSE:CARIMIN) Is Experiencing Growth In Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 looked at Carimin Petroleum Berhad (KLSE:CARIMIN) and its trend of ROCE, we really 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. Analysts use this formula to calculate it for Carimin Petroleum Berhad:

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

0.069 = RM14m ÷ (RM317m - RM117m) (Based on the trailing twelve months to December 2020).

Therefore, Carimin Petroleum Berhad has an ROCE of 6.9%. In absolute terms, that's a low return but it's around the Energy Services industry average of 7.8%.

View our latest analysis for Carimin Petroleum Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Carimin Petroleum Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Carimin Petroleum Berhad's ROCE Trending?

Shareholders will be relieved that Carimin Petroleum Berhad has broken into profitability. The company now earns 6.9% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Carimin Petroleum Berhad has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line On Carimin Petroleum Berhad's ROCE

In summary, we're delighted to see that Carimin Petroleum Berhad has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with a respectable 55% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Carimin Petroleum Berhad can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Carimin Petroleum Berhad, we've discovered 4 warning signs that you should be aware of.

While Carimin Petroleum Berhad 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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