Returns On Capital At Kvutzat Acro (TLV:ACRO) Paint A Concerning Picture

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after briefly looking over the numbers, we don't think Kvutzat Acro (TLV:ACRO) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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. Analysts use this formula to calculate it for Kvutzat Acro:

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

0.021 = ₪112m ÷ (₪7.1b - ₪1.7b) (Based on the trailing twelve months to September 2024).

Thus, Kvutzat Acro has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Construction industry average of 9.0%.

Check out our latest analysis for Kvutzat Acro

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Kvutzat Acro.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Kvutzat Acro doesn't inspire confidence. Around four years ago the returns on capital were 5.7%, but since then they've fallen to 2.1%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take On Kvutzat Acro's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Kvutzat Acro have fallen, meanwhile the business is employing more capital than it was four years ago. It should come as no surprise then that the stock has fallen 20% over the last three years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Kvutzat Acro (of which 1 can't be ignored!) that you should know about.

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.

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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.