Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at some key financial metrics. First, we would like to identify the growing Return On Capital Employed (ROCE) and then at the same time, a steady growth Base of capital employed. Ultimately, it shows that this is a business that is reinvesting profits at increasing rates of return. Speaking of which, we saw some major changes in Byron Energy’s (ASX:BYE) Return on capital, so let’s take a look.
Return on Capital Employed (ROCE): What is it?
For those who don’t know, ROCE is a measure of a company’s annual profit before tax (its return) relative to the capital employed in the business. Analysts use this formula to make calculations for Byron Energy:
Return on Capital Employed = Earnings Before Interest and Taxes (EBIT) (Total Assets – Current Liabilities)
0.097 = US$9.2m (US$115m – US$19m) (Based on last twelve months to June 2021),
Thus, Byron Energy’s ROCE is 9.7%. That in itself is a diminutive return, but compared to the average 2.9% generated by the oil and gas industry, it is much better.
See our latest analysis for Byron Energy
Historical performance is a great place to start. When researching a stock, you can look to gauge Byron Energy’s ROCE against its prior returns. If you want to see how Byron Energy has performed in the past in other metrics, you can check out free Graph of past earnings, revenue and cash flow.
So How’s Byron Energy’s ROCE Trending?
We’re pleased to see Byron Energy returning from its investments and now earning some pre-tax profit. The company was making losses five years ago, but is now earning 9.7%, which is a sight to behold. And surprisingly, like most companies trying to break into the black, Byron Energy is using up to 1,710% more capital than it was five years ago. We like this trend, as it tells us that the company has profitable reinvestment opportunities available to it, and if it continues it could lead to multi-bagger performance.
In short, it’s great to see that Byron Energy has managed to break into profitability and continues to reinvest in its business. Smart investors may have an opportunity here as the stock has lost 26% over the past five years. That being so, it seems appropriate to research the company’s current valuation metrics and future prospects.
If you want to know about some of the risks facing Byron Energy we found 3 warning signs (1 A bit worrying!) That you should know before investing here.
While Byron Energy Isn’t Earning the Highest Returns, Check It Out free List of companies earning high return on equity with solid balance sheet.
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This article by Simple Wall St. is general in nature. We only provide commentary based on historical data and analyst forecasts using an unbiased methodology and our articles are not intended to be financial advice. It does not recommend buying or selling any stock, and does not take into account your objectives, or your financial situation. We aim to bring you long-term focused analytics powered by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative content. Simple Wall St does not have a position in any of the stocks mentioned.