Rav-Bariach (08) Industries (TLV:BRIH) Might Be Having Difficulty Using Its Capital Effectively

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Rav-Bariach (08) Industries (TLV:BRIH), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Rav-Bariach (08) Industries, this is the formula:

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

0.059 = ₪27m ÷ (₪883m - ₪435m) (Based on the trailing twelve months to September 2022).

Therefore, Rav-Bariach (08) Industries has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Building industry average of 15%.

View our latest analysis for Rav-Bariach (08) Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Rav-Bariach (08) Industries' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Rav-Bariach (08) Industries, check out these free graphs here.

The Trend Of ROCE

In terms of Rav-Bariach (08) Industries' historical ROCE movements, the trend isn't fantastic. Around two years ago the returns on capital were 12%, but since then they've fallen to 5.9%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a separate but related note, it's important to know that Rav-Bariach (08) Industries has a current liabilities to total assets ratio of 49%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Rav-Bariach (08) Industries' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Rav-Bariach (08) Industries. And there could be an opportunity here if other metrics look good too, because the stock has declined 35% in the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Rav-Bariach (08) Industries (of which 1 shouldn't be ignored!) that you should know about.

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.

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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.