Investors Will Want Amos Luzon Development and Energy Group's (TLV:LUZN) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Amos Luzon Development and Energy Group (TLV:LUZN) so let's look a bit deeper.

Understanding 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 Amos Luzon Development and Energy Group:

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

0.099 = ₪84m ÷ (₪1.5b - ₪607m) (Based on the trailing twelve months to September 2022).

So, Amos Luzon Development and Energy Group has an ROCE of 9.9%. On its own that's a low return, but compared to the average of 6.8% generated by the Construction industry, it's much better.

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.

What Can We Tell From Amos Luzon Development and Energy Group's ROCE Trend?

We're delighted to see that Amos Luzon Development and Energy Group is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 9.9%, which is always encouraging. While returns have increased, the amount of capital employed by Amos Luzon Development and Energy Group has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

On a side note, Amos Luzon Development and Energy Group's current liabilities are still rather high at 42% of total assets. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Amos Luzon Development and Energy Group's ROCE

To sum it up, Amos Luzon Development and Energy Group is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 156% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about Amos Luzon Development and Energy Group, we've spotted 3 warning signs, and 1 of them is a bit concerning.

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.