We Like These Underlying Return On Capital Trends At Total Energy Services (TSE:TOT)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Total Energy Services (TSE:TOT) and its trend of ROCE, we really liked what we saw.

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 Total Energy Services is:

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

0.067 = CA$48m ÷ (CA$897m - CA$185m) (Based on the trailing twelve months to September 2022).

Thus, Total Energy Services has an ROCE of 6.7%. In absolute terms, that's a low return but it's around the Energy Services industry average of 8.1%.

See our latest analysis for Total Energy Services

In the above chart we have measured Total Energy Services' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Total Energy Services here for free.

How Are Returns Trending?

Total Energy Services has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 6.7% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Total Energy Services has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Key Takeaway

To sum it up, Total Energy Services is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 23% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know about the risks facing Total Energy Services, we've discovered 3 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.