Yahoo Finance Do Anton Oilfield Services Group’s (HKG:3337) Returns On Capital Employed Make The Cut?
Today we'll evaluate Anton Oilfield Services Group (HKG:3337) to determine whether it could have potential as an investment idea. To be precise, we'll consider its Return On Capital Employed (ROCE), as that will inform our view of the quality of the business.
First up, we'll look at what ROCE is and how we calculate it. Second, we'll look at its ROCE compared to similar companies. Finally, we'll look at how its current liabilities affect its ROCE.
Understanding Return On Capital Employed (ROCE)
ROCE measures the 'return' (pre-tax profit) a company generates from capital employed in its business. All else being equal, a better business will have a higher ROCE. Ultimately, it is a useful but imperfect metric. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.
So, How Do We Calculate ROCE?
The formula for calculating the return on capital employed is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Or for Anton Oilfield Services Group:
0.14 = CN¥728m ÷ (CN¥7.6b - CN¥2.3b) (Based on the trailing twelve months to June 2019.)
So, Anton Oilfield Services Group has an ROCE of 14%.
View our latest analysis for Anton Oilfield Services Group
Is Anton Oilfield Services Group's ROCE Good?
ROCE is commonly used for comparing the performance of similar businesses. It appears that Anton Oilfield Services Group's ROCE is fairly close to the Energy Services industry average of 14%. Independently of how Anton Oilfield Services Group compares to its industry, its ROCE in absolute terms appears decent, and the company may be worthy of closer investigation.
Our data shows that Anton Oilfield Services Group currently has an ROCE of 14%, compared to its ROCE of 1.2% 3 years ago. This makes us wonder if the company is improving. You can click on the image below to see (in greater detail) how Anton Oilfield Services Group's past growth compares to other companies.
Remember that this metric is backwards looking - it shows what has happened in the past, and does not accurately predict the future. Companies in cyclical industries can be difficult to understand using ROCE, as returns typically look high during boom times, and low during busts. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. Given the industry it operates in, Anton Oilfield Services Group could be considered cyclical. Future performance is what matters, and you can see analyst predictions in our free report on analyst forecasts for the company.
Anton Oilfield Services Group's Current Liabilities And Their Impact On Its ROCE
Current liabilities include invoices, such as supplier payments, short-term debt, or a tax bill, that need to be paid within 12 months. Due to the way ROCE is calculated, a high level of current liabilities makes a company look as though it has less capital employed, and thus can (sometimes unfairly) boost the ROCE. To counteract this, we check if a company has high current liabilities, relative to its total assets.
Anton Oilfield Services Group has total assets of CN¥7.6b and current liabilities of CN¥2.3b. As a result, its current liabilities are equal to approximately 31% of its total assets. With this level of current liabilities, Anton Oilfield Services Group's ROCE is boosted somewhat.
The Bottom Line On Anton Oilfield Services Group's ROCE
With a decent ROCE, the company could be interesting, but remember that the level of current liabilities make the ROCE look better. There might be better investments than Anton Oilfield Services Group out there, but you will have to work hard to find them . These promising businesses with rapidly growing earnings might be right up your alley.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
