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Here's What To Make Of Enbridge's (TSE:ENB) Decelerating Rates Of Return

Simply Wall St · 07/09 10:52

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Enbridge (TSE:ENB) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Enbridge is:

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

0.055 = CA$11b ÷ (CA$220b - CA$19b) (Based on the trailing twelve months to March 2025).

So, Enbridge has an ROCE of 5.5%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 9.7%.

See our latest analysis for Enbridge

roce
TSX:ENB Return on Capital Employed July 9th 2025

Above you can see how the current ROCE for Enbridge 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 analyst report for Enbridge .

What Does the ROCE Trend For Enbridge Tell Us?

There are better returns on capital out there than what we're seeing at Enbridge. Over the past five years, ROCE has remained relatively flat at around 5.5% and the business has deployed 29% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Enbridge's ROCE

As we've seen above, Enbridge's returns on capital haven't increased but it is reinvesting in the business. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 104% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Enbridge does have some risks though, and we've spotted 2 warning signs for Enbridge that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.