Investors Should Be Encouraged By California Resources' (NYSE:CRC) Returns On Capital
What are the initial patterns we should observe to pinpoint a stock with the potential to greatly increase in value over a long period of time? In an ideal scenario, we would like to see a company dedicating more funds to its operations and ideally, the profits earned from those investments are also growing. In simple terms, these businesses are like valuable assets that continually reinvest their earnings at increasingly favorable rates. Therefore, when we examined the trend of the Return on Capital Employed (ROCE) of California Resources (NYSE:CRC), we were highly impressed by what we observed.
Understanding ROCE: A Key Performance Indicator
For those who may be uncertain, ROCE is a measure used to assess the percentage of pre-tax earnings that a company generates from the capital invested in its operations. Experts make use of this equation to compute the ROCE for California Resources:
Return on Capital Employed (ROCE) can be calculated by dividing Earnings Before Interest and Tax (EBIT) by the difference between Total Assets and Current Liabilities.
0.38 equals the quotient obtained by dividing US$1.2 billion by the difference between US$4.0 billion and US$717 million. This calculation is based on the trailing twelve months up to March 2023.
Therefore, California Resources boasts an impressive return on capital employed (ROCE) of 38%. Such a remarkable performance not only surpasses the average of 23% achieved by companies operating in a comparable sector, but also showcases a superior achievement.
Check out our most recent evaluation for California Resources
In the chart provided, we have assessed California Resources' previous ROCE compared to its past accomplishments, however, what lies ahead holds even greater significance. If you're curious, you can access the analysts' projections in our complimentary report on analyst forecasts for the company.
ROCE Trend Of California Resources: What Does It Reveal?
We're quite pleased with how the Return on Capital Employed (ROCE) has been developing at California Resources. The figures indicate that the returns on the company's capital have surged by 915% in the last five years. This is a highly positive trend as it implies that the company is generating higher earnings per unit of capital being used. Curiously, it seems that the company may be enhancing its efficiency as it is utilizing 44% less capital compared to five years ago. If this pattern persists, it suggests that the company may be becoming more efficient, albeit with a reduction in its overall assets.
Based on the information provided earlier, California Resources has successfully boosted its profits with a simultaneous decrease in its initial investment. With a commendable 17% return for shareholders in the past year, it is evident that investors are acknowledging these transformations. Consequently, we suggest that it is worthwhile for you to investigate whether these patterns are set to continue.
California Resources does come with certain risks, we have identified 3 cautionary indicators (and 2 elements that don't quite align with our preferences) that we believe you should be aware of.
If you are interested in exploring other companies that are generating considerable profits, take a look at our complimentary roster of companies with impressive profits and stable financial positions available here.
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This blog post from Simply Wall St is of a general nature. We offer explanations based on past information and predictions from analysts, using a neutral method. Our posts are not meant to give financial advice. It does not recommend buying or selling any stocks, and does not consider your goals or financial state. We strive to provide extensive analysis based on fundamental data, with a focus on long-term perspectives. Please note that our analysis may not take into account the most recent significant news from companies or qualitative factors. Simply Wall St does not have any investments in the stocks mentioned.
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