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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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Orca Energy Group (CVE:ORC.B) looks great, so lets see what the trend can tell us.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Orca Energy Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.25 = US$34m ÷ (US$207m - US$70m) (Based on the trailing twelve months to September 2024).
Thus, Orca Energy Group has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 9.4%.
View our latest analysis for Orca Energy Group
In the above chart we have measured Orca Energy Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Orca Energy Group .
What Can We Tell From Orca Energy Group's ROCE Trend?
You'd find it hard not to be impressed with the ROCE trend at Orca Energy Group. We found that the returns on capital employed over the last five years have risen by 41%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 31% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.
The Bottom Line On Orca Energy Group's ROCE
From what we've seen above, Orca Energy Group has managed to increase it's returns on capital all the while reducing it's capital base. And since the stock has fallen 27% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
One more thing: We've identified 4 warning signs with Orca Energy Group (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.