Occidental Petroleum’s (NYSE:OXY) stock up by 7.4% over the past three months. As most would know, long-term fundamentals have a strong correlation with market price movements, so we decided to look at the company’s key financial indicators today to determine if they have any role to play in the recent price movement. In this article, we decided to focus on Occidental Petroleum’s ROE.
Return on equity or ROE is a key measure used to assess how efficiently a company’s management is utilizing the company’s capital. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
The formula for ROE is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Occidental Petroleum is:
8.9% = US$3.1b ÷ US$35b (Based on the trailing twelve months to March 2025).
The ‘return’ is the yearly profit. That means that for every $1 worth of shareholders’ equity, the company generated $0.09 in profit.
See our latest analysis for Occidental Petroleum
We have already established that ROE serves as an efficient profit-generating gauge for a company’s future earnings. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.
On the face of it, Occidental Petroleum’s ROE is not much to talk about. We then compared the company’s ROE to the broader industry and were disappointed to see that the ROE is lower than the industry average of 13%. However, we we’re pleasantly surprised to see that Occidental Petroleum grew its net income at a significant rate of 48% in the last five years. So, there might be other aspects that are positively influencing the company’s earnings growth. Such as – high earnings retention or an efficient management in place.
Next, on comparing with the industry net income growth, we found that Occidental Petroleum’s growth is quite high when compared to the industry average growth of 37% in the same period, which is great to see.
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