Yahoo Finance Oceaneering International (NYSE:OII) Could Be At Risk Of Shrinking As A Company
When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. And from a first read, things don't look too good at Oceaneering International (NYSE:OII), so let's see why.
Understanding Return On Capital Employed (ROCE)
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 Oceaneering International:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.012 = US$19m ÷ (US$2.1b - US$480m) (Based on the trailing twelve months to June 2021).
Therefore, Oceaneering International has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 4.2%.
See our latest analysis for Oceaneering International
Above you can see how the current ROCE for Oceaneering International compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Oceaneering International.
So How Is Oceaneering International's ROCE Trending?
In terms of Oceaneering International's historical ROCE trend, it isn't fantastic. Unfortunately, returns have declined substantially over the last five years to the 1.2% we see today. On top of that, the business is utilizing 44% less capital within its operations. The fact that both are shrinking is an indication that the business is going through some tough times. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.
What We Can Learn From Oceaneering International's ROCE
In summary, it's unfortunate that Oceaneering International is shrinking its capital base and also generating lower returns. Long term shareholders who've owned the stock over the last five years have experienced a 52% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.
If you want to continue researching Oceaneering International, you might be interested to know about the 2 warning signs that our analysis has discovered.
While Oceaneering International 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.
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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