If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Questerre Energy (TSE:QEC) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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 Questerre Energy is:

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

0.012 = CA$2.4m ÷ (CA$198m - CA$9.1m) (Based on the trailing twelve months to September 2023).

So, Questerre Energy has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 9.8%.

Check out our latest analysis for Questerre Energy

Historical performance is a great place to start when researching a stock so above you can see the gauge for Questerre Energy's ROCE against it's prior returns. If you're interested in investigating Questerre Energy's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Questerre Energy's ROCE Trend?

Questerre Energy has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 1.2% on its capital, because five years ago it was incurring losses. 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. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

One more thing to note, Questerre Energy has decreased current liabilities to 4.6% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Questerre Energy has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.