Amos Luzon Development and Energy Group's (TLV:LUZN) Returns On Capital Are Heading Higher

If you're looking for a multi-bagger, there's a few things to 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Amos Luzon Development and Energy Group's (TLV:LUZN) returns on capital, so let's have a look.

Understanding 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 Amos Luzon Development and Energy Group is:

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

0.056 = ₪52m ÷ (₪1.7b - ₪728m) (Based on the trailing twelve months to March 2023).

Therefore, Amos Luzon Development and Energy Group has an ROCE of 5.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.4%.

View our latest analysis for Amos Luzon Development and Energy Group

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

So How Is Amos Luzon Development and Energy Group's ROCE Trending?

Amos Luzon Development and Energy Group's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 305% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a separate but related note, it's important to know that Amos Luzon Development and Energy Group has a current liabilities to total assets ratio of 44%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Amos Luzon Development and Energy Group's ROCE

As discussed above, Amos Luzon Development and Energy Group appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 184% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Amos Luzon Development and Energy Group does have some risks, we noticed 4 warning signs (and 1 which is a bit concerning) we think you should know about.

While Amos Luzon Development and Energy Group 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. 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.