Tomer Energy Royalties (2012) (TLV:TOEN) May Have Issues Allocating Its Capital

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. In light of that, from a first glance at Tomer Energy Royalties (2012) (TLV:TOEN), we've spotted some signs that it could be struggling, so let's investigate.

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. Analysts use this formula to calculate it for Tomer Energy Royalties (2012):

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

0.07 = US$11m ÷ (US$163m - US$10m) (Based on the trailing twelve months to June 2023).

So, Tomer Energy Royalties (2012) has an ROCE of 7.0%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 15%.

Check out 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'd like to look at how Tomer Energy Royalties (2012) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Tomer Energy Royalties (2012)'s historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 18% that they were earning four years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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.

The Bottom Line On Tomer Energy Royalties (2012)'s ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors must expect better things on the horizon though because the stock has risen 11% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Tomer Energy Royalties (2012) (of which 1 is concerning!) that you should know about.

While Tomer Energy Royalties (2012) 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.