Returns Are Gaining Momentum At Olin (NYSE:OLN)

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Olin (NYSE:OLN) and its trend of ROCE, we really liked what we saw.

Understanding 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. To calculate this metric for Olin, this is the formula:

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

0.15 = US$988m ÷ (US$7.8b - US$1.4b) (Based on the trailing twelve months to September 2023).

So, Olin has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 10% generated by the Chemicals industry.

Check out our latest analysis for Olin

Above you can see how the current ROCE for Olin compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Olin here for free.

How Are Returns Trending?

You'd find it hard not to be impressed with the ROCE trend at Olin. The data shows that returns on capital have increased by 95% over the trailing five years. 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 21% 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.

What We Can Learn From Olin's ROCE

From what we've seen above, Olin has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a staggering 175% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Olin, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Olin isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.