Stock Analysis

Returns On Capital Are A Standout For Exxon Mobil (NYSE:XOM)

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To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at Exxon Mobil's (NYSE:XOM) look very promising so lets take a look.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Exxon Mobil is:

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

0.24 = US$72b ÷ (US$369b - US$69b) (Based on the trailing twelve months to December 2022).

So, Exxon Mobil has an ROCE of 24%. In absolute terms that's a very respectable return and compared to the Oil and Gas industry average of 21% it's pretty much on par.

See our latest analysis for Exxon Mobil

NYSE:XOM Return on Capital Employed March 10th 2023

Above you can see how the current ROCE for Exxon Mobil 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 report on analyst forecasts for the company.

How Are Returns Trending?

Exxon Mobil is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 393% over the last five years. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

To bring it all together, Exxon Mobil has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 88% return over the last five years. In light of that, we think it's worth looking further into this stock because if Exxon Mobil can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for Exxon Mobil (1 is a bit 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.

What are the risks and opportunities for Exxon Mobil?

Exxon Mobil Corporation explores for and produces crude oil and natural gas in the United States and internationally.

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  • Trading at 22.7% below our estimate of its fair value

  • Earnings have grown 9.5% per year over the past 5 years


  • Earnings are forecast to decline by an average of 15.3% per year for the next 3 years

  • Significant insider selling over the past 3 months

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