National Fuel Gas's (NYSE:NFG) returns on capital have stalled

What underlying trends should we look for in a company to find a multi-bagger stock? Firstly, we want to see something proven return on capital employed (ROCE) increases, and secondly, it grows base of the capital employed. Ultimately, this shows that this is a company that reinvests profits at increasing returns. However, at first glance National fuel gas (NYSE:NFG) We're not jumping off our chairs over the direction of returns, but let's take a closer look.

Understand return on capital employed (ROCE).

Just to clarify in case you're not sure, ROCE is a measure used to evaluate how much pre-tax income (as a percentage) a company earns from the capital invested in its business. The formula for this calculation for National Fuel Gas is:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.094 = $747 million ÷ ($8.5 billion – $517 million) (Based on the last twelve months ended June 2024).

Therefore, National Fuel Gas has an ROCE of 9.4%. That's a small return on its own, but compared to the average of 6.4% generated by the gas utilities industry, it's much better.

Check out our latest analysis for National Fuel Gas

Above you can see how the current ROCE for National Fuel Gas compares to its past returns on capital, but there's only so much you can tell from the past. If you are interested, you can see the analyst forecasts in our free Analyst report for National Fuel Gas.

How is National Fuel Gas's ROCE developing?

Returns on capital have barely changed for National Fuel Gas in recent years. Over the past five years, ROCE has remained relatively constant at around 9.4%, and the company has invested 34% more capital in its operations. Given that the company has increased capital deployment, the investments made simply do not seem to produce a high return on capital.

Finally…

As we saw above, National Fuel Gas' return on capital has not increased, but the company is reinvesting in the business. With the stock up an impressive 67% over the last five years, investors have to assume there's even better things to come. However, unless these underlying trends become more positive, we wouldn't get our hopes up too much.

Something else to note: We discovered 5 warning signs Familiarizing and understanding National Fuel Gas should be part of your investment process.

Even though National Fuel Gas doesn't have the highest return, check out the following free List of companies that generate high returns on equity with solid balance sheets.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.