Can Acmepoint Energy ServicesLtd (GTSM:6692) Continue To Grow Its Returns On Capital?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Acmepoint Energy ServicesLtd's (GTSM:6692) returns on capital, so let's have a look.

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

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. To calculate this metric for Acmepoint Energy ServicesLtd, this is the formula:

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

0.19 = NT$121m ÷ (NT$1.2b - NT$589m) (Based on the trailing twelve months to June 2020).

Therefore, Acmepoint Energy ServicesLtd has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 7.5% generated by the Construction industry.

View our latest analysis for Acmepoint Energy ServicesLtd

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 want to delve into the historical earnings, revenue and cash flow of Acmepoint Energy ServicesLtd, check out these free graphs here.

What Does the ROCE Trend For Acmepoint Energy ServicesLtd Tell Us?

We like the trends that we're seeing from Acmepoint Energy ServicesLtd. Over the last four years, returns on capital employed have risen substantially to 19%. 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 164%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Another thing to note, Acmepoint Energy ServicesLtd has a high ratio of current liabilities to total assets of 47%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

To sum it up, Acmepoint Energy ServicesLtd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 14% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

Like most companies, Acmepoint Energy ServicesLtd does come with some risks, and we've found 2 warning signs that you should be aware of.

While Acmepoint Energy ServicesLtd 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. 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.
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