What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Exxon Mobil's (NYSE:XOM) returns on capital, so let's have a look.
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 Exxon Mobil is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.22 = US$67b ÷ (US$363b - US$62b) (Based on the trailing twelve months to June 2023).
Thus, Exxon Mobil has an ROCE of 22%. On its own that's a fantastic return on capital, though it's the same as the Oil and Gas industry average of 22%.
View our latest analysis for Exxon Mobil
In the above chart we have measured Exxon Mobil'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 Exxon Mobil here for free.
What Does the ROCE Trend For Exxon Mobil Tell Us?
Exxon Mobil has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 267% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
Our Take On Exxon Mobil's ROCE
To bring it all together, Exxon Mobil has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 68% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Exxon Mobil can keep these trends up, it could have a bright future ahead.
On a final note, we've found 1 warning sign for Exxon Mobil that we think you should be aware of.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
https://news.google.com/rss/articles/CBMiTGh0dHBzOi8vZmluYW5jZS55YWhvby5jb20vbmV3cy9leHhvbi1tb2JpbC1ueXNlLXhvbS1hY2hpZXZpbmctMTIwMDIwMTM1Lmh0bWzSAVRodHRwczovL2ZpbmFuY2UueWFob28uY29tL2FtcGh0bWwvbmV3cy9leHhvbi1tb2JpbC1ueXNlLXhvbS1hY2hpZXZpbmctMTIwMDIwMTM1Lmh0bWw?oc=5
2023-07-29 12:00:20Z
CBMiTGh0dHBzOi8vZmluYW5jZS55YWhvby5jb20vbmV3cy9leHhvbi1tb2JpbC1ueXNlLXhvbS1hY2hpZXZpbmctMTIwMDIwMTM1Lmh0bWzSAVRodHRwczovL2ZpbmFuY2UueWFob28uY29tL2FtcGh0bWwvbmV3cy9leHhvbi1tb2JpbC1ueXNlLXhvbS1hY2hpZXZpbmctMTIwMDIwMTM1Lmh0bWw
Bagikan Berita Ini
0 Response to "Exxon Mobil (NYSE:XOM) Is Achieving High Returns On Its Capital - Yahoo Finance"
Post a Comment