We Like These Underlying Return On Capital Trends At Antero Midstream (NYSE:AM)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. So on that note, Antero Midstream (NYSE:AM) looks quite promising in regards to its trends of return on capital.

What Is 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. To calculate this metric for Antero Midstream, this is the formula:

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

0.11 = US$639m ÷ (US$5.8b - US$116m) (Based on the trailing twelve months to June 2024).

Thus, Antero Midstream has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 12% generated by the Oil and Gas industry.

View our latest analysis for Antero Midstream

In the above chart we have measured Antero Midstream's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Antero Midstream .

How Are Returns Trending?

Antero Midstream is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 539% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Antero Midstream's ROCE

In summary, we're delighted to see that Antero Midstream has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 288% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Antero Midstream does have some risks though, and we've spotted 2 warning signs for Antero Midstream that you might be interested in.

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

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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.