Yahoo Finance The Returns At SFL (NYSE:SFL) Aren't Growing
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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think SFL (NYSE:SFL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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. The formula for this calculation on SFL is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.069 = US$223m ÷ (US$3.6b - US$395m) (Based on the trailing twelve months to March 2022).
So, SFL has an ROCE of 6.9%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 11%.
View our latest analysis for SFL
Above you can see how the current ROCE for SFL 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 SFL.
What Does the ROCE Trend For SFL Tell Us?
The returns on capital haven't changed much for SFL in recent years. The company has employed 23% more capital in the last five years, and the returns on that capital have remained stable at 6.9%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
The Bottom Line
Long story short, while SFL has been reinvesting its capital, the returns that it's generating haven't increased. And with the stock having returned a mere 11% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
If you want to know some of the risks facing SFL we've found 4 warning signs (2 don't sit too well with us!) that you should be aware of before investing here.
While SFL isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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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