Capital Allocation Trends At Rimon Consulting & Management Services (TLV:RMON) Aren't Ideal

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Rimon Consulting & Management Services (TLV:RMON) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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 Rimon Consulting & Management Services:

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

0.086 = ₪80m ÷ (₪1.6b - ₪691m) (Based on the trailing twelve months to March 2025).

Thus, Rimon Consulting & Management Services has an ROCE of 8.6%. In absolute terms, that's a low return, but it's much better than the Construction industry average of 6.6%.

Check out our latest analysis for Rimon Consulting & Management Services

Historical performance is a great place to start when researching a stock so above you can see the gauge for Rimon Consulting & Management Services' 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 Rimon Consulting & Management Services.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Rimon Consulting & Management Services doesn't inspire confidence. To be more specific, ROCE has fallen from 13% over the last four years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

On a separate but related note, it's important to know that Rimon Consulting & Management Services has a current liabilities to total assets ratio of 43%, 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.

The Bottom Line On Rimon Consulting & Management Services' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Rimon Consulting & Management Services. And the stock has followed suit returning a meaningful 96% to shareholders over the last three years. So should these growth trends continue, we'd be optimistic on the stock going forward.

On a final note, we found 4 warning signs for Rimon Consulting & Management Services (2 are potentially serious) you should be aware of.

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.