Public Service Enterprise Group (NYSE:PEG) Shareholders Will Want The ROCE Trajectory To Continue

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'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 on that note, Public Service Enterprise Group (NYSE:PEG) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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 Public Service Enterprise Group:

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

0.087 = US$3.8b ÷ (US$50b - US$5.2b) (Based on the trailing twelve months to September 2023).

Thus, Public Service Enterprise Group has an ROCE of 8.7%. On its own that's a low return, but compared to the average of 5.1% generated by the Integrated Utilities industry, it's much better.

View our latest analysis for Public Service Enterprise Group

In the above chart we have measured Public Service Enterprise Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Public Service Enterprise Group.

So How Is Public Service Enterprise Group's ROCE Trending?

Public Service Enterprise Group's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 57% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Public Service Enterprise Group's ROCE

To sum it up, Public Service Enterprise Group is collecting higher returns from the same amount of capital, and that's impressive. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 24% to shareholders. So with that in mind, we think the stock deserves further research.

If you want to know some of the risks facing Public Service Enterprise Group we've found 3 warning signs (2 are a bit concerning!) that you should be aware of before investing here.

While Public Service Enterprise Group 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.