Carimin Petroleum Berhad (KLSE:CARIMIN) Will Be Hoping To Turn Its Returns On Capital Around
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Carimin Petroleum Berhad (KLSE:CARIMIN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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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. Analysts use this formula to calculate it for Carimin Petroleum Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = RM29m ÷ (RM377m - RM113m) (Based on the trailing twelve months to December 2024).
So, Carimin Petroleum Berhad has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Energy Services industry average of 12%.
Check out our latest analysis for Carimin Petroleum Berhad
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 , check out these free graphs detailing revenue and cash flow performance of Carimin Petroleum Berhad.
On the surface, the trend of ROCE at Carimin Petroleum Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 18% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
To conclude, we've found that Carimin Petroleum Berhad is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 10% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
One more thing: We've identified 3 warning signs with Carimin Petroleum Berhad (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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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