Will The ROCE Trend At Petra Energy Berhad (KLSE:PENERGY) Continue?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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 Petra Energy Berhad (KLSE:PENERGY) 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 Petra Energy Berhad is:

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

0.099 = RM38m ÷ (RM632m - RM250m) (Based on the trailing twelve months to September 2020).

Therefore, Petra Energy Berhad has an ROCE of 9.9%. On its own, that's a low figure but it's around the 8.6% average generated by the Energy Services industry.

See our latest analysis for Petra Energy 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 want to delve into the historical earnings, revenue and cash flow of Petra Energy Berhad, check out these free graphs here.

How Are Returns Trending?

You'd find it hard not to be impressed with the ROCE trend at Petra Energy Berhad. The data shows that returns on capital have increased by 54% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Petra Energy Berhad appears to been achieving more with less, since the business is using 50% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

Our Take On Petra Energy Berhad's ROCE

From what we've seen above, Petra Energy Berhad has managed to increase it's returns on capital all the while reducing it's capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 5.4% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you want to continue researching Petra Energy Berhad, you might be interested to know about the 3 warning signs that our analysis has discovered.

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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