Yahoo Finance We Like These Underlying Return On Capital Trends At Helmerich & Payne (NYSE:HP)
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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Helmerich & Payne's (NYSE:HP) returns on capital, so let's have a look.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Helmerich & Payne is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = US$395m ÷ (US$4.4b - US$414m) (Based on the trailing twelve months to March 2023).
Therefore, Helmerich & Payne has an ROCE of 10.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.9%.
View our latest analysis for Helmerich & Payne
Above you can see how the current ROCE for Helmerich & Payne compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From Helmerich & Payne's ROCE Trend?
We're delighted to see that Helmerich & Payne is reaping rewards from its investments and has now broken into profitability. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 10.0% on their capital employed. In regards to capital employed, Helmerich & Payne is using 33% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. This could potentially mean that the company is selling some of its assets.
What We Can Learn From Helmerich & Payne's ROCE
In summary, it's great to see that Helmerich & Payne has been able to turn things around and earn higher returns on lower amounts of capital. Astute investors may have an opportunity here because the stock has declined 42% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
While Helmerich & Payne looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether HP is currently trading for a fair price.
While Helmerich & Payne 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.
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