There's Been No Shortage Of Growth Recently For Precision Drilling's (TSE:PD) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Speaking of which, we noticed some great changes in Precision Drilling's (TSE:PD) returns on capital, so let's have a look.

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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. Analysts use this formula to calculate it for Precision Drilling:

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

0.068 = CA$172m ÷ (CA$2.8b - CA$285m) (Based on the trailing twelve months to September 2025).

Therefore, Precision Drilling has an ROCE of 6.8%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 11%.

Check out our latest analysis for Precision Drilling

In the above chart we have measured Precision Drilling'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 analyst report for Precision Drilling .

The Trend Of ROCE

We're delighted to see that Precision Drilling is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 6.8%, which is always encouraging. While returns have increased, the amount of capital employed by Precision Drilling has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

Our Take On Precision Drilling's ROCE

In summary, we're delighted to see that Precision Drilling has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 249% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 2 warning signs with Precision Drilling and understanding them should be part of your investment process.

While Precision Drilling 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.