Akastor's (OB:AKAST) Returns On Capital Are Heading Higher

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Speaking of which, we noticed some great changes in Akastor's (OB:AKAST) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Akastor is:

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

0.04 = kr194m ÷ (kr6.4b - kr1.5b) (Based on the trailing twelve months to September 2023).

Thus, Akastor has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 12%.

View our latest analysis for Akastor

Above you can see how the current ROCE for Akastor compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Akastor.

What Does the ROCE Trend For Akastor Tell Us?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 1,001% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Akastor's ROCE

To bring it all together, Akastor has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 8.6% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

One more thing to note, we've identified 2 warning signs with Akastor and understanding these should be part of your investment process.

While Akastor 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.