Yahoo Finance The Return Trends At OPG Power Ventures (LON:OPG) Look Promising
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, we've noticed some promising trends at OPG Power Ventures (LON:OPG) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on OPG Power Ventures is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.055 = UK£11m ÷ (UK£281m - UK£73m) (Based on the trailing twelve months to September 2022).
Therefore, OPG Power Ventures has an ROCE of 5.5%. In absolute terms, that's a low return and it also under-performs the Electric Utilities industry average of 9.2%.
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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
How Are Returns Trending?
OPG Power Ventures has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 29%. The company is now earning UK£0.05 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 55% less capital than it was five years ago. OPG Power Ventures may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
The Bottom Line
In a nutshell, we're pleased to see that OPG Power Ventures has been able to generate higher returns from less capital. And since the stock has fallen 41% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.
One final note, you should learn about the 3 warning signs we've spotted with OPG Power Ventures (including 1 which makes us a bit uncomfortable) .
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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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