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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Cheniere Energy's (NYSE:LNG) returns on capital, so let's have a look.
What Is 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. Analysts use this formula to calculate it for Cheniere Energy:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$6.8b ÷ (US$43b - US$4.2b) (Based on the trailing twelve months to September 2024).
Therefore, Cheniere Energy has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 11% generated by the Oil and Gas industry.
Check out our latest analysis for Cheniere Energy
Above you can see how the current ROCE for Cheniere Energy compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Cheniere Energy .
The Trend Of ROCE
Cheniere Energy has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 219% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
What We Can Learn From Cheniere Energy's ROCE
As discussed above, Cheniere Energy appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you want to know some of the risks facing Cheniere Energy we've found 3 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.