Investors Will Want Petrotx - Limited Partnership's (TLV:PTX) Growth In ROCE To Persist

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, we've noticed some promising trends at Petrotx - Limited Partnership (TLV:PTX) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Petrotx - Limited Partnership:

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

0.17 = US$4.4m ÷ (US$33m - US$7.2m) (Based on the trailing twelve months to March 2022).

Thus, Petrotx - Limited Partnership has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 9.3% generated by the Oil and Gas industry.

See our latest analysis for Petrotx - Limited Partnership

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

What Does the ROCE Trend For Petrotx - Limited Partnership Tell Us?

The fact that Petrotx - Limited Partnership is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 17% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Petrotx - Limited Partnership is utilizing 2,123% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 22%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From Petrotx - Limited Partnership's ROCE

Long story short, we're delighted to see that Petrotx - Limited Partnership's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 67% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about Petrotx - Limited Partnership, we've spotted 3 warning signs, and 1 of them is concerning.

While Petrotx - Limited Partnership may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.