Returns Are Gaining Momentum At Cadogan Energy Solutions (LON:CAD)

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6 days ago

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So when we looked at Cadogan Energy Solutions (LON:CAD) and its trend of ROCE, we really liked what we saw.
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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. The formula for this calculation on Cadogan Energy Solutions is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.018 = US$518k ÷ (US$31m - US$1.9m) (Based on the trailing twelve months to December 2024).
Thus, Cadogan Energy Solutions has an ROCE of 1.8%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 9.6%.
See our latest analysis for Cadogan Energy Solutions
Historical performance is a great place to start when researching a stock so above you can see the gauge for Cadogan Energy Solutions' ROCE against it's prior returns. If you'd like to look at how Cadogan Energy Solutions has performed in the past in other metrics, you can view this free graph of Cadogan Energy Solutions' past earnings, revenue and cash flow.
The Trend Of ROCE
Like most people, we're pleased that Cadogan Energy Solutions 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 1.8% on their capital employed. Additionally, the business is utilizing 42% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. This could potentially mean that the company is selling some of its assets.
What We Can Learn From Cadogan Energy Solutions' ROCE
In the end, Cadogan Energy Solutions has proven it's capital allocation skills are good with those higher returns from less amount of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 24% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
If you'd like to know about the risks facing Cadogan Energy Solutions, we've discovered 2 warning signs that you should be aware of.
While Cadogan Energy Solutions may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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