Pulse Oil's (CVE:PUL) Returns On Capital Are Heading Higher




  • In Business
  • 2022-09-28 11:48:40Z
  • By Simply Wall St.
 

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Pulse Oil's (CVE:PUL) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Pulse Oil:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.065 = CA$1.9m ÷ (CA$31m - CA$1.6m) (Based on the trailing twelve months to June 2022).

Therefore, Pulse Oil has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 18%.

See our latest analysis for Pulse Oil

Historical performance is a great place to start when researching a stock so above you can see the gauge for Pulse Oil's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Pulse Oil, check out these free graphs here.

How Are Returns Trending?

We're delighted to see that Pulse Oil is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 6.5% which is a sight for sore eyes. Not only that, but the company is utilizing 357% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Pulse Oil's ROCE

To the delight of most shareholders, Pulse Oil has now broken into profitability. Given the stock has declined 53% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 5 warning signs for Pulse Oil (2 shouldn't be ignored) you should be aware of.

While Pulse Oil isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

Join A Paid User Research Session
You'll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here

COMMENTS

More Related News

We Like These Underlying Return On Capital Trends At Hosen Group (Catalist:5EV)
We Like These Underlying Return On Capital Trends At Hosen Group (Catalist:5EV)

What are the early trends we should look for to identify a stock that could multiply in value over the long term...

Returns Are Gaining Momentum At Hovnanian Enterprises (NYSE:HOV)
Returns Are Gaining Momentum At Hovnanian Enterprises (NYSE:HOV)

What are the early trends we should look for to identify a stock that could multiply in value over the long term...

The Return Trends At DorianG (NYSE:LPG) Look Promising
The Return Trends At DorianG (NYSE:LPG) Look Promising

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an...

Imperial Oil (TSE:IMO) Is Investing Its Capital With Increasing Efficiency
Imperial Oil (TSE:IMO) Is Investing Its Capital With Increasing Efficiency

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a...

Investors Met With Slowing Returns on Capital At Target (NYSE:TGT)
Investors Met With Slowing Returns on Capital At Target (NYSE:TGT)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business