Investors Shouldn't Overlook The Favourable Returns On Capital At LyondellBasell Industries (NYSE:LYB)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over LyondellBasell Industries' (NYSE:LYB) trend of ROCE, we really liked what we saw.

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

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 LyondellBasell Industries:

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

0.21 = US$6.1b ÷ (US$36b - US$7.6b) (Based on the trailing twelve months to September 2022).

So, LyondellBasell Industries has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 12%.

Check out our latest analysis for LyondellBasell Industries

Above you can see how the current ROCE for LyondellBasell Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for LyondellBasell Industries.

What Can We Tell From LyondellBasell Industries' ROCE Trend?

It's hard not to be impressed by LyondellBasell Industries' returns on capital. Over the past five years, ROCE has remained relatively flat at around 21% and the business has deployed 40% more capital into its operations. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.

What We Can Learn From LyondellBasell Industries' ROCE

LyondellBasell Industries has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And given the stock has only risen 5.0% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

If you want to know some of the risks facing LyondellBasell Industries we've found 5 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

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.