If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Duke Energy (NYSE:DUK) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Duke Energy, this is the formula:

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

0.045 = US$7.2b ÷ (US$177b - US$17b) (Based on the trailing twelve months to December 2023).

So, Duke Energy has an ROCE of 4.5%. Even though it's in line with the industry average of 4.6%, it's still a low return by itself.

In the above chart we have measured Duke Energy's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Duke Energy .

What Does the ROCE Trend For Duke Energy Tell Us?

There are better returns on capital out there than what we're seeing at Duke Energy. Over the past five years, ROCE has remained relatively flat at around 4.5% and the business has deployed 22% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From Duke Energy's ROCE

Long story short, while Duke Energy has been reinvesting its capital, the returns that it's generating haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 31% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to know some of the risks facing Duke Energy we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

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

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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.