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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Olin's (NYSE:OLN) returns on capital, so let's have a look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Olin is:

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

0.06 = US$356m ÷ (US$7.6b - US$1.6b) (Based on the trailing twelve months to December 2024).

Thus, Olin has an ROCE of 6.0%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 8.8%.

View our latest analysis for Olin

In the above chart we have measured Olin'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 Olin .

What Does the ROCE Trend For Olin Tell Us?

We're pretty happy with how the ROCE has been trending at Olin. The data shows that returns on capital have increased by 82% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 27% less capital than it was five years ago. Olin may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

Our Take On Olin's ROCE

In the end, Olin has proven it's capital allocation skills are good with those higher returns from less amount of capital. And a remarkable 109% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Olin can keep these trends up, it could have a bright future ahead.

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

While Olin 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.