We Like Weatherford International's (NASDAQ:WFRD) Returns And Here's How They're Trending

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. And in light of that, the trends we're seeing at Weatherford International's (NASDAQ:WFRD) look very promising so lets take a look.

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What Is 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. Analysts use this formula to calculate it for Weatherford International:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.27 = US$938m ÷ (US$5.2b - US$1.7b) (Based on the trailing twelve months to December 2024).

So, Weatherford International has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Energy Services industry average of 9.8%.

Check out our latest analysis for Weatherford International

In the above chart we have measured Weatherford International's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Weatherford International .

The Trend Of ROCE

It's great to see that Weatherford International has started to generate some pre-tax earnings from prior investments. While the business is profitable now, it used to be incurring losses on invested capital five years ago. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 38%. Weatherford International could be selling under-performing assets since the ROCE is improving.

The Bottom Line On Weatherford International's ROCE

In summary, it's great to see that Weatherford International has been able to turn things around and earn higher returns on lower amounts of capital. 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.

Weatherford International does have some risks though, and we've spotted 2 warning signs for Weatherford International that you might be interested in.

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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.