FLEX LNG (NYSE:FLNG) Shareholders Will Want The ROCE Trajectory To Continue

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in FLEX LNG's (NYSE:FLNG) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for FLEX LNG:

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

0.085 = US$210m ÷ (US$2.6b - US$162m) (Based on the trailing twelve months to June 2024).

Thus, FLEX LNG has an ROCE of 8.5%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 12%.

See our latest analysis for FLEX LNG

In the above chart we have measured FLEX LNG'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 FLEX LNG .

What The Trend Of ROCE Can Tell Us

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.5%. Basically the business is earning more per dollar of capital invested and in addition to that, 83% more capital is being employed now too. So we're very much inspired by what we're seeing at FLEX LNG thanks to its ability to profitably reinvest capital.

Our Take On FLEX LNG's ROCE

All in all, it's terrific to see that FLEX LNG is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if FLEX LNG can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing FLEX LNG, we've discovered 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.