What Do The Returns At Golan Plastic Products (TLV:GLPL) Mean Going Forward?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. 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 Golan Plastic Products' (TLV:GLPL) returns on capital, so let's have a look.

Understanding 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)

0.10 = ₪35m ÷ (₪428m - ₪87m) (Based on the trailing twelve months to September 2020).

So, Golan Plastic Products has an ROCE of 10%. In absolute terms, that's a pretty standard return but compared to the Building industry average it falls behind.

Check out our latest analysis for Golan Plastic Products

Historical performance is a great place to start when researching a stock so above you can see the gauge for Golan Plastic Products' ROCE against it's prior returns. If you're interested in investigating Golan Plastic Products' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Golan Plastic Products Tell Us?

Golan Plastic Products is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 10%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 56%. So we're very much inspired by what we're seeing at Golan Plastic Products thanks to its ability to profitably reinvest capital.

The Bottom Line On Golan Plastic Products' ROCE

In summary, it's great to see that Golan Plastic Products can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 90% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Golan Plastic Products can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for Golan Plastic Products that we think you should be aware of.

While Golan Plastic Products isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

If you decide to trade Golan Plastic Products, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.