Returns At National Fuel Gas (NYSE:NFG) Appear To Be Weighed Down

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at National Fuel Gas (NYSE:NFG) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for National Fuel Gas:

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

0.093 = US$722m ÷ (US$8.6b - US$807m) (Based on the trailing twelve months to December 2023).

So, National Fuel Gas has an ROCE of 9.3%. On its own that's a low return, but compared to the average of 6.2% generated by the Gas Utilities industry, it's much better.

Check out our latest analysis for National Fuel Gas

Above you can see how the current ROCE for National Fuel Gas 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 National Fuel Gas for free.

The Trend Of ROCE

The returns on capital haven't changed much for National Fuel Gas in recent years. The company has consistently earned 9.3% for the last five years, and the capital employed within the business has risen 35% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On National Fuel Gas' ROCE

In summary, National Fuel Gas has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 0.9% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One more thing, we've spotted 2 warning signs facing National Fuel Gas that you might find interesting.

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.