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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Kolibri Global Energy's (TSE:KEI) returns on capital, so let's have a look.

What Is 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 Kolibri Global Energy is:

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

0.11 = US$24m ÷ (US$231m - US$11m) (Based on the trailing twelve months to June 2024).

Therefore, Kolibri Global Energy has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.1% generated by the Oil and Gas industry.

Check out our latest analysis for Kolibri Global Energy

Above you can see how the current ROCE for Kolibri Global Energy 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 analyst report for Kolibri Global Energy .

What Does the ROCE Trend For Kolibri Global Energy Tell Us?

The trends we've noticed at Kolibri Global Energy are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The amount of capital employed has increased too, by 40%. So we're very much inspired by what we're seeing at Kolibri Global Energy thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Kolibri Global Energy is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing Kolibri Global Energy that you might find interesting.

While Kolibri Global Energy may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.