Returns On Capital At Ludan Engineering (TLV:LUDN) Have Hit The Brakes

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, the ROCE of Ludan Engineering (TLV:LUDN) looks decent, right now, so lets see what the trend of returns can tell us.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Ludan Engineering:

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

0.18 = ₪43m ÷ (₪460m - ₪218m) (Based on the trailing twelve months to September 2024).

Therefore, Ludan Engineering has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 9.0% generated by the Construction industry.

View our latest analysis for Ludan Engineering

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

So How Is Ludan Engineering's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has employed 51% more capital in the last five years, and the returns on that capital have remained stable at 18%. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, Ludan Engineering has done well to reduce current liabilities to 47% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk. Although because current liabilities are still 47%, some of that risk is still prevalent.

In Conclusion...

The main thing to remember is that Ludan Engineering has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 708% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you want to continue researching Ludan Engineering, you might be interested to know about the 2 warning signs that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.