Why We Like The Returns At Petrotx - Limited Partnership (TLV:PTX)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Petrotx - Limited Partnership (TLV:PTX) looks great, so lets see what the trend can tell us.

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. To calculate this metric for Petrotx - Limited Partnership, this is the formula:

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

0.25 = US$6.8m ÷ (US$36m - US$8.8m) (Based on the trailing twelve months to June 2022).

Thus, Petrotx - Limited Partnership has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

Check out our latest analysis for Petrotx - Limited Partnership

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Petrotx - Limited Partnership, check out these free graphs here.

How Are Returns Trending?

Petrotx - Limited Partnership has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 25% which is a sight for sore eyes. Not only that, but the company is utilizing 2,891% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 25%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Petrotx - Limited Partnership has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Petrotx - Limited Partnership's ROCE

In summary, it's great to see that Petrotx - Limited Partnership has managed to break into profitability and is continuing to reinvest in its business. However the stock is down a substantial 86% in the last five years so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

One more thing: We've identified 3 warning signs with Petrotx - Limited Partnership (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.