Will the Promising Trends At Min Hagoren Development (TLV:MNGN) Continue?

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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, we've noticed some promising trends at Min Hagoren Development (TLV:MNGN) 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. The formula for this calculation on Min Hagoren Development is:

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

0.013 = ₪1.0m ÷ (₪78m - ₪1.4m) (Based on the trailing twelve months to June 2020).

Therefore, Min Hagoren Development has an ROCE of 1.3%. Ultimately, that's a low return and it under-performs the Electrical industry average of 7.9%.

View our latest analysis for Min Hagoren Development

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

What Does the ROCE Trend For Min Hagoren Development Tell Us?

We're delighted to see that Min Hagoren Development is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 1.3% which is no doubt a relief for some early shareholders. In regards to capital employed, Min Hagoren Development is using 31% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. Min Hagoren Development could be selling under-performing assets since the ROCE is improving.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 1.7%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

In summary, it's great to see that Min Hagoren Development has been able to turn things around and earn higher returns on lower amounts of capital. Given the stock has declined 43% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we've found 2 warning signs for Min Hagoren Development that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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