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Returns On Capital Are Showing Encouraging Signs At Berry (NASDAQ:BRY)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Berry (NASDAQ:BRY) and its trend of ROCE, we really liked what we saw.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Berry is:

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

0.17 = US$244m ÷ (US$1.6b - US$234m) (Based on the trailing twelve months to December 2022).

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So, Berry has an ROCE of 17%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Oil and Gas industry average of 21%.

View our latest analysis for Berry

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In the above chart we have measured Berry'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 Berry.

What The Trend Of ROCE Can Tell Us

Shareholders will be relieved that Berry has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 17% on its capital. While returns have increased, the amount of capital employed by Berry has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

What We Can Learn From Berry's ROCE

To sum it up, Berry is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 28% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

If you'd like to know more about Berry, we've spotted 3 warning signs, and 1 of them is significant.

While Berry isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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