These Trends Paint A Bright Future For Naphtha Israel Petroleum (TLV:NFTA)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in Naphtha Israel Petroleum's (TLV:NFTA) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Naphtha Israel Petroleum is:

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

0.23 = ₪1.2b ÷ (₪5.8b - ₪618m) (Based on the trailing twelve months to September 2020).

Therefore, Naphtha Israel Petroleum has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 12%.

See our latest analysis for Naphtha Israel Petroleum

Historical performance is a great place to start when researching a stock so above you can see the gauge for Naphtha Israel Petroleum's ROCE against it's prior returns. If you're interested in investigating Naphtha Israel Petroleum's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Naphtha Israel Petroleum's ROCE Trending?

We're pretty happy with how the ROCE has been trending at Naphtha Israel Petroleum. The figures show that over the last five years, returns on capital have grown by 75%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Naphtha Israel Petroleum appears to been achieving more with less, since the business is using 22% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Key Takeaway

In a nutshell, we're pleased to see that Naphtha Israel Petroleum has been able to generate higher returns from less capital. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. 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 Naphtha Israel Petroleum, we've discovered 2 warning signs that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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