U.S. markets closed
  • S&P Futures

    3,920.25
    +20.75 (+0.53%)
     
  • Dow Futures

    31,357.00
    +144.00 (+0.46%)
     
  • Nasdaq Futures

    11,903.50
    +62.75 (+0.53%)
     
  • Russell 2000 Futures

    1,781.50
    +9.30 (+0.52%)
     
  • Crude Oil

    109.81
    -0.47 (-0.43%)
     
  • Gold

    1,846.50
    +4.40 (+0.24%)
     
  • Silver

    21.80
    +0.12 (+0.56%)
     
  • EUR/USD

    1.0575
    -0.0012 (-0.12%)
     
  • 10-Yr Bond

    2.7870
    -0.0680 (-2.38%)
     
  • Vix

    29.43
    +0.08 (+0.27%)
     
  • GBP/USD

    1.2504
    +0.0029 (+0.23%)
     
  • USD/JPY

    127.9910
    +0.1970 (+0.15%)
     
  • BTC-USD

    30,311.38
    +949.17 (+3.23%)
     
  • CMC Crypto 200

    650.34
    -23.03 (-3.42%)
     
  • FTSE 100

    7,389.98
    +87.24 (+1.19%)
     
  • Nikkei 225

    26,739.03
    +336.23 (+1.27%)
     

The Return Trends At Topaz Energy (TSE:TPZ) Look Promising

  • Oops!
    Something went wrong.
    Please try again later.
·2 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Topaz Energy's (TSE:TPZ) returns on capital, so let's have a look.

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 Topaz Energy is:

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

0.015 = CA$21m ÷ (CA$1.5b - CA$8.6m) (Based on the trailing twelve months to September 2021).

Thus, Topaz Energy has an ROCE of 1.5%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 6.3%.

Check out our latest analysis for Topaz Energy

roce
roce

Above you can see how the current ROCE for Topaz Energy 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 report on analyst forecasts for the company.

What Does the ROCE Trend For Topaz Energy Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last one year, returns on capital employed have risen substantially to 1.5%. Basically the business is earning more per dollar of capital invested and in addition to that, 56% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Topaz Energy's ROCE

To sum it up, Topaz Energy has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 36% return over the last year. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to know some of the risks facing Topaz Energy we've found 3 warning signs (2 are significant!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.