Yahoo Finance OPG Power Ventures (LON:OPG) Is Experiencing Growth In Returns On Capital
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at OPG Power Ventures (LON:OPG) and its trend of ROCE, we really liked what we saw.
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. To calculate this metric for OPG Power Ventures, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = UK£27m ÷ (UK£256m - UK£38m) (Based on the trailing twelve months to March 2021).
So, OPG Power Ventures has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Electric Utilities industry average of 7.4% it's much better.
Check out our latest analysis for OPG Power Ventures
In the above chart we have measured OPG Power Ventures' 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 report for OPG Power Ventures.
The Trend Of ROCE
OPG Power Ventures has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 25% over the trailing five years. The company is now earning UK£0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 51% 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.
In Conclusion...
In a nutshell, we're pleased to see that OPG Power Ventures has been able to generate higher returns from less capital. Although the company may be facing some issues elsewhere since the stock has plunged 76% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for OPG Power Ventures (of which 1 is concerning!) that you should know about.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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