What Is Return On Capital Employed (ROCE)?
For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Kosmos Energy is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.039 = US$170m ÷ (US$5.0b – US$564m) (Based on the trailing twelve months to September 2023).Thus, Kosmos Energy has an ROCE of 3.9%. Ultimately, that’s a low return and it under-performs the Oil and Gas industry average of 17%.
Above you can see how the current ROCE for Kosmos Energy compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’re interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
How Are Returns Trending?
Shareholders will be relieved that Kosmos Energy has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 3.9%, which is always encouraging. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it’s worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
Source: https://finance.yahoo.com