If you want to identify your next multibagger, there are some important trends to look out for. In an ideal world, companies would invest more capital in their operations, and ideally the return on that capital would also increase. Simply put, this type of business is a compound interest machine, meaning you are continually reinvesting your earnings at an ever-higher rate of return. So, if we look at the trends in ROCE, EOG resources (NYSE:EOG) We really liked what we saw.
Return on Capital Employed (ROCE): What is it?
For those who don't know, ROCE is a measure of a company's annual pre-tax profit (return) on the capital employed in the business. To calculate this metric for EOG resources, use the following formula:
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.25 = USD 9.9 billion ÷ (USD 44 billion – USD 4.2 billion) (Based on the previous 12 months to September 2023).
So, EOG Resources' ROCE is 25%. In absolute terms, this is a significant gain, even better than the oil and gas industry average of 15%.
Check out our latest analysis for EOG Resources.
In the chart above, we've measured EOG Resources' previous ROCE compared to its previous performance, but the future is probably more important. If you would like, you can check out forecasts made by the analysts covering EOG Resources here. free.
What are the return trends like?
Investors will be happy with what's happening with EOG Resources. According to the data, the return on capital has increased significantly to 25% in the past five years. The amount of capital used also increased by 35%. This could indicate that there are plenty of opportunities inside to invest capital at ever-higher interest rates, and this combination is common among multibaggers.
EOG Resources' ROCE Conclusion
A company that can generate strong returns on capital and continually reinvest in itself is a highly sought after trait, and EOG Resources has that. And the stock has delivered a 50% return for shareholders over the past five years, so investors seem to be counting on it to continue doing so. With that in mind, we think the stock is worth further consideration, as it could have a bright future ahead if EOG Resources can maintain these trends.
One more thing: we have identified two warning signs It certainly helps to use EOG resources (at least one that cannot be ignored) and understand them.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
