The Return Trends At Schlumberger (NYSE:SLB) Look Promising

There are a few key trends to look for if we want to identify the next 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Schlumberger (NYSE:SLB) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Schlumberger is:

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

0.16 = US$5.3b ÷ (US$46b - US$13b) (Based on the trailing twelve months to September 2023).

Therefore, Schlumberger has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Energy Services industry average of 12% it's much better.

View our latest analysis for Schlumberger

In the above chart we have measured Schlumberger'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 report for Schlumberger.

What Does the ROCE Trend For Schlumberger Tell Us?

Schlumberger has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 158%. The company is now earning US$0.2 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 40% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

In Conclusion...

In summary, it's great to see that Schlumberger has been able to turn things around and earn higher returns on lower amounts of capital. And with a respectable 49% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. 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 separate note, we've found 2 warning signs for Schlumberger you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.