Returns On Capital At IMCO Industries (TLV:IMCO) Have Hit The Brakes

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. 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. However, after investigating IMCO Industries (TLV:IMCO), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. Analysts use this formula to calculate it for IMCO Industries:

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

0.057 = ₪6.0m ÷ (₪162m - ₪58m) (Based on the trailing twelve months to December 2020).

So, IMCO Industries has an ROCE of 5.7%. Ultimately, that's a low return and it under-performs the Aerospace & Defense industry average of 9.4%.

Check out our latest analysis for IMCO Industries

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

The Trend Of ROCE

Things have been pretty stable at IMCO Industries, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if IMCO Industries doesn't end up being a multi-bagger in a few years time.

What We Can Learn From IMCO Industries' ROCE

We can conclude that in regards to IMCO Industries' returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 21% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

IMCO Industries does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

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

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