Yahoo Finance Shareholders Would Enjoy A Repeat Of EOG Resources' (NYSE:EOG) Recent Growth In Returns
What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of EOG Resources (NYSE:EOG) looks great, so lets see what the trend can tell us.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on EOG Resources is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.32 = US$12b ÷ (US$41b - US$4.2b) (Based on the trailing twelve months to March 2023).
Therefore, EOG Resources has an ROCE of 32%. That's a fantastic return and not only that, it outpaces the average of 23% earned by companies in a similar industry.
View our latest analysis for EOG Resources
Above you can see how the current ROCE for EOG Resources 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 report for EOG Resources.
What The Trend Of ROCE Can Tell Us
EOG Resources is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 32%. The amount of capital employed has increased too, by 32%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Bottom Line
To sum it up, EOG Resources has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 16% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.
EOG Resources does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.
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