TETRA Technologies' (NYSE:TTI) Returns On Capital Are Heading Higher

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at TETRA Technologies (NYSE:TTI) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for TETRA Technologies:

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

0.12 = US$44m ÷ (US$500m - US$120m) (Based on the trailing twelve months to June 2024).

Therefore, TETRA Technologies has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Energy Services industry.

View our latest analysis for TETRA Technologies

Above you can see how the current ROCE for TETRA Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for TETRA Technologies .

What Does the ROCE Trend For TETRA Technologies Tell Us?

TETRA Technologies has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 270%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 69% less than it was five years ago, which can be indicative of a business that's improving its efficiency. TETRA Technologies may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line On TETRA Technologies' ROCE

In a nutshell, we're pleased to see that TETRA Technologies has been able to generate higher returns from less capital. Since the stock has returned a solid 50% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 3 warning signs for TETRA Technologies (1 is a bit concerning) you should be aware of.

While TETRA Technologies isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.