The Trend Of High Returns At California Resources (NYSE:CRC) Has Us Very Interested

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. With that in mind, the ROCE of California Resources (NYSE:CRC) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for California Resources:

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

0.24 = US$781m ÷ (US$3.9b - US$582m) (Based on the trailing twelve months to June 2023).

Therefore, California Resources has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 18%.

View our latest analysis for California Resources

In the above chart we have measured California Resources' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering California Resources here for free.

The Trend Of ROCE

You'd find it hard not to be impressed with the ROCE trend at California Resources. We found that the returns on capital employed over the last five years have risen by 349%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 45% less than it was five years ago, which can be indicative of a business that's improving its efficiency. California Resources may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

Our Take On California Resources' ROCE

In the end, California Resources has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a staggering 331% to shareholders over the last three years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we found 3 warning signs for California Resources (2 are concerning) you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.