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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So on that note, Condor Energies (TSE:CDR) looks quite promising in regards to its trends of return on capital.
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 Condor Energies is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = CA$3.0m ÷ (CA$54m - CA$29m) (Based on the trailing twelve months to September 2024).
So, Condor Energies has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Oil and Gas industry.
Check out our latest analysis for Condor Energies
In the above chart we have measured Condor Energies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Condor Energies .
The Trend Of ROCE
It's great to see that Condor Energies has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 12% which is no doubt a relief for some early shareholders. 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 26%. This could potentially mean that the company is selling some of its assets.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 55% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.
The Bottom Line On Condor Energies' ROCE
From what we've seen above, Condor Energies has managed to increase it's returns on capital all the while reducing it's capital base. And a remarkable 455% 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.