Siem Offshore (OB:SIOFF) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Siem Offshore is:

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

0.038 = US$37m ÷ (US$1.1b - US$106m) (Based on the trailing twelve months to December 2021).

Therefore, Siem Offshore has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 5.2%.

See our latest analysis for Siem Offshore

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 Siem Offshore has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Siem Offshore's ROCE Trending?

While the ROCE is still rather low for Siem Offshore, we're glad to see it heading in the right direction. The data shows that returns on capital have increased by 380% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 53% 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 On Siem Offshore's ROCE

In the end, Siem Offshore has proven it's capital allocation skills are good with those higher returns from less amount of capital. Although the company may be facing some issues elsewhere since the stock has plunged 94% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

One final note, you should learn about the 4 warning signs we've spotted with Siem Offshore (including 2 which shouldn't be ignored) .

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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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.