Investors Will Want Athabasca Oil's (TSE:ATH) Growth In ROCE To Persist
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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Athabasca Oil (TSE:ATH) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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 Athabasca Oil:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = CA$211m ÷ (CA$1.8b - CA$266m) (Based on the trailing twelve months to September 2022).
Thus, Athabasca Oil has an ROCE of 14%. In isolation, that's a pretty standard return but against the Oil and Gas industry average of 21%, it's not as good.
Check out our latest analysis for Athabasca Oil
Above you can see how the current ROCE for Athabasca Oil compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
Like most people, we're pleased that Athabasca Oil is now generating some pretax earnings. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 14% on their capital employed. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 35%. This could potentially mean that the company is selling some of its assets.
The Bottom Line On Athabasca Oil's ROCE
In summary, it's great to see that Athabasca Oil has been able to turn things around and earn higher returns on lower amounts of capital. And a remarkable 113% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Athabasca Oil (of which 1 is significant!) that you should know about.
While Athabasca Oil 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.
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