Here's What's Concerning About Tomer Energy Royalties (2012)'s (TLV:TOEN) Returns On Capital

What financial metrics can indicate to us that a company is maturing or even in decline? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. So after glancing at the trends within Tomer Energy Royalties (2012) (TLV:TOEN), we weren't too hopeful.

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 Tomer Energy Royalties (2012) is:

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

0.066 = US$10.0m ÷ (US$161m - US$9.9m) (Based on the trailing twelve months to September 2023).

Therefore, Tomer Energy Royalties (2012) has an ROCE of 6.6%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 16%.

View our latest analysis for Tomer Energy Royalties (2012)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tomer Energy Royalties (2012)'s ROCE against it's prior returns. If you're interested in investigating Tomer Energy Royalties (2012)'s past further, check out this free graph covering Tomer Energy Royalties (2012)'s past earnings, revenue and cash flow.

So How Is Tomer Energy Royalties (2012)'s ROCE Trending?

In terms of Tomer Energy Royalties (2012)'s historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 20% four 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 Tomer Energy Royalties (2012) becoming one if things continue as they have.

Our Take On Tomer Energy Royalties (2012)'s ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. In spite of that, the stock has delivered a 30% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

Tomer Energy Royalties (2012) does have some risks, we noticed 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.