Awilco LNG (OB:ALNG) Is Experiencing Growth In Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Awilco LNG's (OB:ALNG) returns on capital, so let's have a look.

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. The formula for this calculation on Awilco LNG is:

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

0.16 = US$51m ÷ (US$355m - US$31m) (Based on the trailing twelve months to June 2024).

Therefore, Awilco LNG has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 17% generated by the Oil and Gas industry.

View our latest analysis for Awilco LNG

Above you can see how the current ROCE for Awilco LNG 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 Awilco LNG for free.

So How Is Awilco LNG's ROCE Trending?

We're delighted to see that Awilco LNG is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 16% on its capital. In addition to that, Awilco LNG is employing 211% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 8.8%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

Our Take On Awilco LNG's ROCE

In summary, it's great to see that Awilco LNG has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 173% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Awilco LNG can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 3 warning signs we've spotted with Awilco LNG (including 1 which doesn't sit too well with us) .

While Awilco LNG 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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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.