【fall for my ex's mafia dad read online free】Evaluating New Times Energy Corporation Limited’s (HKG:166) Investments In Its Business

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Today we’ll look at New Times Energy Corporation Limited (

HKG:166

) and reflect on its potential as an investment. In particular, we’ll consider its Return On Capital Employed (ROCE), as that can give us insight into how profitably the company is able to employ capital in its business.

First, we’ll go over how we calculate ROCE. Second, we’ll look at its ROCE compared to similar companies. Then we’ll determine how its current liabilities are affecting its ROCE.

Return On Capital Employed (ROCE): What is it?

ROCE measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. In general, businesses with a higher ROCE are usually better quality. In brief, it is a useful tool, but it is not without drawbacks. Author Edwin Whiting

says

to be careful when comparing the ROCE of different businesses, since ‘No two businesses are exactly alike.’

So, How Do We Calculate ROCE?

Analysts use this formula to calculate return on capital employed:

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

Or for New Times Energy:

0.09 = HK$162m ÷ (HK$3.6b – HK$75m) (Based on the trailing twelve months to June 2018.)

Therefore,

New Times Energy has an ROCE of 9.0%.

See our latest analysis for New Times Energy

Does New Times Energy Have A Good ROCE?

One way to assess ROCE is to compare similar companies. We can see New Times Energy’s ROCE is around the 9.9% average reported by the Oil and Gas industry. Setting aside the industry comparison for now, New Times Energy’s ROCE is mediocre in absolute terms, considering the risk of investing in stocks versus the safety of a bank account. Readers may find more attractive investment prospects elsewhere.

New Times Energy has an ROCE of 9.0%, but it didn’t have an ROCE 3 years ago, since it was unprofitable. That implies the business has been improving.

SEHK:166 Last Perf February 1st 19

It is important to remember that ROCE shows past performance, and is not necessarily predictive. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. We note New Times Energy could be considered a cyclical business. You can check if New Times Energy has cyclical profits by looking at this

free

graph of past earnings, revenue and cash flow

.

Story continues

New Times Energy’s Current Liabilities And Their Impact On Its ROCE

Liabilities, such as supplier bills and bank overdrafts, are referred to as current liabilities if they need to be paid within 12 months. Due to the way the ROCE equation works, having large bills due in the near term can make it look as though a company has less capital employed, and thus a higher ROCE than usual. To counteract this, we check if a company has high current liabilities, relative to its total assets.

New Times Energy has total assets of HK$3.6b and current liabilities of HK$75m. As a result, its current liabilities are equal to approximately 2.1% of its total assets. With low levels of current liabilities, at least New Times Energy’s mediocre ROCE is not unduly boosted.

Our Take On New Times Energy’s ROCE

Based on this information, New Times Energy appears to be a mediocre business. Of course

you might be able to find a better stock than New Times Energy

. So you may wish to see this

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If you like to buy stocks alongside management, then you might just love this

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To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at

[email protected]

.

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