Return Trends At Duke Energy (NYSE:DUK) Aren't Appealing

By
Simply Wall St
Published
June 06, 2021
NYSE:DUK

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Having said that, from a first glance at Duke Energy (NYSE:DUK) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Duke Energy:

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

0.038 = US$5.6b ÷ (US$163b - US$17b) (Based on the trailing twelve months to March 2021).

Thus, Duke Energy has an ROCE of 3.8%. In absolute terms, that's a low return but it's around the Electric Utilities industry average of 4.5%.

See our latest analysis for Duke Energy

roce
NYSE:DUK Return on Capital Employed June 6th 2021

Above you can see how the current ROCE for Duke Energy 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.

So How Is Duke Energy's ROCE Trending?

The returns on capital haven't changed much for Duke Energy in recent years. The company has consistently earned 3.8% for the last five years, and the capital employed within the business has risen 32% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Duke Energy's ROCE

As we've seen above, Duke Energy's returns on capital haven't increased but it is reinvesting in the business. Since the stock has gained an impressive 55% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One final note, you should learn about the 6 warning signs we've spotted with Duke Energy (including 1 which is significant) .

While Duke Energy 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. 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.
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