We Like Riverstone Holdings' (SGX:AP4) Returns And Here's How They're Trending

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Riverstone Holdings (SGX:AP4) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Riverstone Holdings is:

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

0.37 = RM753m ÷ (RM2.3b - RM208m) (Based on the trailing twelve months to June 2022).

So, Riverstone Holdings has an ROCE of 37%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 11%.

Check out our latest analysis for Riverstone Holdings

Above you can see how the current ROCE for Riverstone Holdings 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 Riverstone Holdings.

The Trend Of ROCE

We like the trends that we're seeing from Riverstone Holdings. Over the last five years, returns on capital employed have risen substantially to 37%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 235%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Riverstone Holdings' ROCE

To sum it up, Riverstone Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 69% return over the last five years. In light of that, we think it's worth looking further into this stock because if Riverstone Holdings can keep these trends up, it could have a bright future ahead.

Riverstone Holdings does have some risks, we noticed 3 warning signs (and 2 which are potentially serious) we think you should know about.

Riverstone Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.