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Investors Could Be Concerned With Tsakos Energy Navigation's (NYSE:TNP) Returns On Capital

·3 min read

What underlying fundamental trends can indicate that a company might be in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. On that note, looking into Tsakos Energy Navigation (NYSE:TNP), we weren't too upbeat about how things were going.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Tsakos Energy Navigation is:

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

0.016 = US$44m ÷ (US$3.1b - US$332m) (Based on the trailing twelve months to June 2022).

Thus, Tsakos Energy Navigation has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 16%.

View our latest analysis for Tsakos Energy Navigation

roce
roce

In the above chart we have measured Tsakos Energy Navigation's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Tsakos Energy Navigation here for free.

So How Is Tsakos Energy Navigation's ROCE Trending?

There is reason to be cautious about Tsakos Energy Navigation, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 2.6% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Tsakos Energy Navigation to turn into a multi-bagger.

Our Take On Tsakos Energy Navigation's ROCE

In summary, it's unfortunate that Tsakos Energy Navigation is generating lower returns from the same amount of capital. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you'd like to know about the risks facing Tsakos Energy Navigation, we've discovered 2 warning signs that you should be aware of.

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.

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

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.

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