Will the Promising Trends At Mendelson Infrastructures & Industries (TLV:MNIN) Continue?

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Speaking of which, we noticed some great changes in Mendelson Infrastructures & Industries' (TLV:MNIN) returns on capital, so let's have a look.

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. To calculate this metric for Mendelson Infrastructures & Industries, this is the formula:

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

0.099 = ₪46m ÷ (₪787m - ₪320m) (Based on the trailing twelve months to September 2020).

Thus, Mendelson Infrastructures & Industries has an ROCE of 9.9%. In absolute terms, that's a low return, but it's much better than the Trade Distributors industry average of 6.8%.

See our latest analysis for Mendelson Infrastructures & Industries

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Mendelson Infrastructures & Industries, check out these free graphs here.

How Are Returns Trending?

Mendelson Infrastructures & Industries' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 36% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

On a separate but related note, it's important to know that Mendelson Infrastructures & Industries has a current liabilities to total assets ratio of 41%, 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Mendelson Infrastructures & Industries' ROCE

To bring it all together, Mendelson Infrastructures & Industries has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we've found 1 warning sign for Mendelson Infrastructures & Industries that we think you should be aware of.

While Mendelson Infrastructures & Industries 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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