If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at SBM Offshore (AMS:SBMO), it didn't seem to tick all of these boxes.

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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 SBM Offshore is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.064 = US$911m ÷ (US$17b - US$2.9b) (Based on the trailing twelve months to December 2024).

Thus, SBM Offshore has an ROCE of 6.4%.  In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 10%.

Check out our latest analysis for SBM Offshore ENXTAM:SBMO Return on Capital Employed June 23rd 2025

In the above chart we have measured SBM Offshore's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering SBM Offshore  for free.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at SBM Offshore, we didn't gain much confidence. To be more specific, ROCE has fallen from 8.6% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On SBM Offshore's ROCE

In summary, SBM Offshore is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 134% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to know some of the risks facing SBM Offshore we've found 3 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

Story Continues

While SBM Offshore isn't earning the highest return, check out this freelist 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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