Oil and Natural Gas (NSE:ONGC) Is Doing The Right Things To Multiply Its Share Price - Simply Wall St

Oil and Natural Gas (NSE:ONGC) Is Doing The Right Things To Multiply Its Share Price - Simply Wall St News

Stock Analysis

India
- /
Oil and Gas
- /
- NSEI:ONGC

Oil and Natural Gas (NSE:ONGC) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could 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 on that note, Oil and Natural Gas ( NSE:ONGC) 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 Oil and Natural Gas is:

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

0.15 = ₹761b ÷ (₹6.7t - ₹1.5t) (Based on the trailing twelve months to September 2023).

Thus, Oil and Natural Gas has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 16% generated by the Oil and Gas industry.

Check out our latest analysis for Oil and Natural Gas

Above you can see how the current ROCE for Oil and Natural Gas 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 The Trend Of ROCE Can Tell Us

Oil and Natural Gas is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 48% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Oil and Natural Gas' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Oil and Natural Gas has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 94% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing Oil and Natural Gas, we've discovered 1 warning sign that you should be aware of.

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

Valuation is complex, but we're helping make it simple.

Find out whether Oil and Natural Gas is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
View the Free Analysis

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.

About NSEI:ONGC

Oil and Natural Gas

Oil and Natural Gas Corporation Limited explores for, develops, and produces crude oil and natural gas in India and internationally.

Established dividend payer with adequate balance sheet.