Yahoo Finance Returns At California Resources (NYSE:CRC) Appear To Be Weighed Down
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. Although, when we looked at California Resources (NYSE:CRC), it didn't seem to tick all of these boxes.
What Is 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. The formula for this calculation on California Resources is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.084 = US$277m ÷ (US$3.9b - US$594m) (Based on the trailing twelve months to March 2024).
Therefore, California Resources has an ROCE of 8.4%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 13%.
View our latest analysis for California Resources
Above you can see how the current ROCE for California Resources 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 California Resources for free.
What Does the ROCE Trend For California Resources Tell Us?
We're a bit concerned with the trends, because the business is applying 49% less capital than it was five years ago and returns on that capital have stayed flat. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. In addition to that, since the ROCE doesn't scream "quality" at 8.4%, it's hard to get excited about these developments.
What We Can Learn From California Resources' ROCE
Overall, we're not ecstatic to see California Resources reducing the amount of capital it employs in the business. Although the market must be expecting these trends to improve because the stock has gained 64% over the last three years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
If you'd like to know about the risks facing California Resources, we've discovered 4 warning signs that 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.
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