Tomer Energy Royalties (2012) (TLV:TOEN) Will Be Hoping To Turn Its Returns On Capital Around

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. Having said that, after a brief look, Tomer Energy Royalties (2012) (TLV:TOEN) we aren't filled with optimism, but let's investigate further.

What Is 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 Tomer Energy Royalties (2012):

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

0.062 = US$9.4m ÷ (US$162m - US$10m) (Based on the trailing twelve months to March 2022).

Therefore, Tomer Energy Royalties (2012) has an ROCE of 6.2%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 11%.

See 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 want to delve into the historical earnings, revenue and cash flow of Tomer Energy Royalties (2012), check out these free graphs here.

What Can We Tell From Tomer Energy Royalties (2012)'s ROCE Trend?

There is reason to be cautious about Tomer Energy Royalties (2012), given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 16% that they were earning three years ago. 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. If these trends continue, we wouldn't expect Tomer Energy Royalties (2012) to turn into a multi-bagger.

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 14% in the last three years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

One more thing: We've identified 4 warning signs with Tomer Energy Royalties (2012) (at least 2 which are potentially serious) , and understanding these would certainly be useful.

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.