Why We Like The Returns At Ocean Bio-Chem (NASDAQ:OBCI)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Ocean Bio-Chem (NASDAQ:OBCI) looks great, so lets see what the trend can tell us.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Ocean Bio-Chem, this is the formula:

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

0.28 = US$12m ÷ (US$50m - US$6.7m) (Based on the trailing twelve months to September 2020).

So, Ocean Bio-Chem has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Household Products industry average of 20%.

Check out our latest analysis for Ocean Bio-Chem

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 Ocean Bio-Chem, check out these free graphs here.

What Can We Tell From Ocean Bio-Chem's ROCE Trend?

Ocean Bio-Chem is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 28%. 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 104%. So we're very much inspired by what we're seeing at Ocean Bio-Chem thanks to its ability to profitably reinvest capital.

What We Can Learn From Ocean Bio-Chem's ROCE

To sum it up, Ocean Bio-Chem has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 589% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Ocean Bio-Chem can keep these trends up, it could have a bright future ahead.

Ocean Bio-Chem does have some risks though, and we've spotted 2 warning signs for Ocean Bio-Chem that you might be interested in.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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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