Ashot Ashkelon Industries (TLV:ASHO) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Ashot Ashkelon Industries (TLV:ASHO) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Ashot Ashkelon Industries:

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

0.06 = ₪20m ÷ (₪535m - ₪207m) (Based on the trailing twelve months to December 2021).

Thus, Ashot Ashkelon Industries has an ROCE of 6.0%. Even though it's in line with the industry average of 6.0%, it's still a low return by itself.

See our latest analysis for Ashot Ashkelon Industries

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, revenue and cash flow of Ashot Ashkelon Industries, check out these free graphs here.

What Can We Tell From Ashot Ashkelon Industries' ROCE Trend?

You'd find it hard not to be impressed with the ROCE trend at Ashot Ashkelon Industries. We found that the returns on capital employed over the last five years have risen by 721%. The company is now earning ₪0.06 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 28% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Bottom Line

From what we've seen above, Ashot Ashkelon Industries has managed to increase it's returns on capital all the while reducing it's capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Ashot Ashkelon Industries looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ASHO is currently trading for a fair price.

While Ashot Ashkelon Industries may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.