The Returns On Capital At Imagesat International (I.S.I) (TLV:ISI) Don't Inspire Confidence

What trends should we look for it we want to identify stocks that can 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Imagesat International (I.S.I) (TLV:ISI) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Imagesat International (I.S.I) is:

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

0.02 = US$3.8m ÷ (US$248m - US$57m) (Based on the trailing twelve months to March 2024).

So, Imagesat International (I.S.I) has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Aerospace & Defense industry average of 13%.

View our latest analysis for Imagesat International (I.S.I)

Above you can see how the current ROCE for Imagesat International (I.S.I) compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Imagesat International (I.S.I) .

So How Is Imagesat International (I.S.I)'s ROCE Trending?

When we looked at the ROCE trend at Imagesat International (I.S.I), we didn't gain much confidence. Over the last four years, returns on capital have decreased to 2.0% from 7.6% four years ago. 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.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 23%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 2.0%. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that Imagesat International (I.S.I) is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 50% over the last year, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, Imagesat International (I.S.I) does come with some risks, and we've found 1 warning sign that you should be aware of.

While Imagesat International (I.S.I) 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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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.