We Like Ratio Energies - Limited Partnership's (TLV:RATI) Returns And Here's How They're Trending

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Ratio Energies - Limited Partnership (TLV:RATI) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Ratio Energies - Limited Partnership is:

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

0.20 = US$211m ÷ (US$1.2b - US$112m) (Based on the trailing twelve months to March 2024).

Thus, Ratio Energies - Limited Partnership has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 12%.

Check out our latest analysis for Ratio Energies - 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 , check out these free graphs detailing revenue and cash flow performance of Ratio Energies - Limited Partnership.

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

We're delighted to see that Ratio Energies - Limited Partnership is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 20% on its capital. And unsurprisingly, like most companies trying to break into the black, Ratio Energies - Limited Partnership is utilizing 27% 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.

Our Take On Ratio Energies - Limited Partnership's ROCE

Long story short, we're delighted to see that Ratio Energies - Limited Partnership's reinvestment activities have paid off and the company is now profitable. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 24% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know about the risks facing Ratio Energies - Limited Partnership, we've discovered 2 warning signs that you should be aware of.

Ratio Energies - Limited Partnership is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com