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Investors Shouldn't Overlook Exxon Mobil's (NYSE:XOM) Impressive Returns On Capital

Simply Wall St
·2 min read

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Exxon Mobil (NYSE:XOM) looks great, so lets see what the trend can tell us.

What Is 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 Exxon Mobil, this is the formula:

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

0.22 = US$66b ÷ (US$363b - US$62b) (Based on the trailing twelve months to June 2023).

Therefore, Exxon Mobil has an ROCE of 22%. In absolute terms that's a very respectable return and compared to the Oil and Gas industry average of 21% it's pretty much on par.

View our latest analysis for Exxon Mobil

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In the above chart we have measured Exxon Mobil's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Exxon Mobil's ROCE Trending?

Exxon Mobil is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 264% 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 Key Takeaway

To bring it all together, Exxon Mobil has done well to increase the returns it's generating from its capital employed. And with a respectable 79% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Exxon Mobil can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for Exxon Mobil you'll probably want to know about.

Exxon Mobil is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.