Golan Plastic Products (TLV:GLPL) Hasn't Managed To Accelerate Its Returns

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. So, when we ran our eye over Golan Plastic Products' (TLV:GLPL) trend of ROCE, we liked what we saw.

What is Return On Capital Employed (ROCE)?

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 Golan Plastic Products:

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

0.11 = ₪37m ÷ (₪446m - ₪109m) (Based on the trailing twelve months to December 2020).

So, Golan Plastic Products has an ROCE of 11%. In isolation, that's a pretty standard return but against the Building industry average of 17%, it's not as good.

Check out our latest analysis for Golan Plastic Products

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 Golan Plastic Products, check out these free graphs here.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 62% in that time. 11% is a pretty standard return, and it provides some comfort knowing that Golan Plastic Products has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

To sum it up, Golan Plastic Products has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 127% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Golan Plastic Products does have some risks though, and we've spotted 2 warning signs for Golan Plastic Products that you might be interested in.

While Golan Plastic Products 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.

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This article by Simply Wall St is general in nature. 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.
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