Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, National Fuel Gas (NYSE:NFG) looks quite promising in regards to its trends of return on capital.

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

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. The formula for this calculation on National Fuel Gas is:

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

0.10 = US$743m ÷ (US$8.3b - US$1.1b) (Based on the trailing twelve months to September 2024).

Thus, National Fuel Gas has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Gas Utilities industry average of 6.4% it's much better.

In the above chart we have measured National Fuel Gas' 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 National Fuel Gas for free.

What Does the ROCE Trend For National Fuel Gas Tell Us?

National Fuel Gas has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 26% 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From National Fuel Gas' ROCE

In summary, we're delighted to see that National Fuel Gas has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 71% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if National Fuel Gas can keep these trends up, it could have a bright future ahead.

National Fuel Gas does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those can't be ignored...

While National Fuel Gas may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.