Returns At Siem Offshore (OB:SIOFF) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, we've noticed some promising trends at Siem Offshore (OB:SIOFF) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Siem Offshore:

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

0.09 = US$78m ÷ (US$1.0b - US$148m) (Based on the trailing twelve months to September 2023).

Thus, Siem Offshore has an ROCE of 9.0%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 12%.

View our latest analysis for Siem Offshore

In the above chart we have measured Siem Offshore's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Siem Offshore here for free.

So How Is Siem Offshore's ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at Siem Offshore. We found that the returns on capital employed over the last five years have risen by 2,370%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 47% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line

From what we've seen above, Siem Offshore has managed to increase it's returns on capital all the while reducing it's capital base. And since the stock has dived 84% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

On a final note, we've found 1 warning sign for Siem Offshore that we think you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.