Sasol (JSE:SOL) Is Experiencing Growth In Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Sasol (JSE:SOL) looks quite promising in regards to its trends of return on capital.

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

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. To calculate this metric for Sasol, this is the formula:

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

0.12 = R35b ÷ (R360b - R69b) (Based on the trailing twelve months to June 2025).

Therefore, Sasol has an ROCE of 12%. In isolation, that's a pretty standard return but against the Chemicals industry average of 20%, it's not as good.

Check out our latest analysis for Sasol

In the above chart we have measured Sasol's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Sasol for free.

What Does the ROCE Trend For Sasol Tell Us?

You'd find it hard not to be impressed with the ROCE trend at Sasol. We found that the returns on capital employed over the last five years have risen by 244%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Sasol appears to been achieving more with less, since the business is using 24% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Bottom Line

In the end, Sasol has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has only returned 8.5% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we've found 2 warning signs for Sasol that we think you should be aware of.

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.