Here's What's Concerning About Delek Royalties (2012)'s (TLV:DLRL) Returns On Capital

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. So after glancing at the trends within Delek Royalties (2012) (TLV:DLRL), we weren't too hopeful.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Delek Royalties (2012):

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

0.099 = US$16m ÷ (US$172m - US$14m) (Based on the trailing twelve months to December 2020).

Therefore, Delek Royalties (2012) has an ROCE of 9.9%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 13%.

View our latest analysis for Delek Royalties (2012)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Delek Royalties (2012)'s ROCE against it's prior returns. If you'd like to look at how Delek Royalties (2012) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at Delek Royalties (2012). To be more specific, the ROCE was 14% two years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Delek Royalties (2012) becoming one if things continue as they have.

The Bottom Line On Delek Royalties (2012)'s ROCE

In summary, it's unfortunate that Delek Royalties (2012) is generating lower returns from the same amount of capital. And, the stock has remained flat over the last year, so investors don't seem too impressed either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One more thing: We've identified 3 warning signs with Delek Royalties (2012) (at least 1 which can't be ignored) , and understanding them would certainly be useful.

While Delek Royalties (2012) isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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