Investors Should Be Encouraged By Cheniere Energy's (NYSE:LNG) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. 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)?

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 Cheniere Energy:

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

0.40 = US$16b ÷ (US$43b - US$3.9b) (Based on the trailing twelve months to December 2023).

Thus, Cheniere Energy has an ROCE of 40%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 15%.

See our latest analysis for Cheniere Energy

In the above chart we have measured Cheniere Energy's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Cheniere Energy .

What Does the ROCE Trend For Cheniere Energy Tell Us?

The trends we've noticed at Cheniere Energy are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 40%. The amount of capital employed has increased too, by 30%. So we're very much inspired by what we're seeing at Cheniere Energy thanks to its ability to profitably reinvest capital.

The Bottom Line On Cheniere Energy's ROCE

In summary, it's great to see that Cheniere Energy can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 152% to shareholders over the last five 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.

If you'd like to know more about Cheniere Energy, we've spotted 2 warning signs, and 1 of them can't be ignored.

Cheniere Energy is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.