Investors Shouldn't Overlook Aryt Industries' (TLV:ARYT) Impressive Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Aryt Industries' (TLV:ARYT) returns on capital, so let's have a look.

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 Aryt Industries is:

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

0.50 = ₪26m ÷ (₪133m - ₪82m) (Based on the trailing twelve months to June 2024).

Thus, Aryt Industries has an ROCE of 50%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

View our latest analysis for Aryt Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Aryt Industries' ROCE against it's prior returns. If you'd like to look at how Aryt Industries has performed in the past in other metrics, you can view this free graph of Aryt Industries' past earnings, revenue and cash flow.

What Can We Tell From Aryt Industries' ROCE Trend?

Aryt Industries is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 65% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 62% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

In Conclusion...

To bring it all together, Aryt Industries has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 354% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Aryt Industries can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing Aryt Industries that you might find interesting.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.