Returns At Rimon Consulting & Management Services (TLV:RMON) Appear To Be Weighed Down

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Although, when we looked at Rimon Consulting & Management Services (TLV:RMON), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Rimon Consulting & Management Services, this is the formula:

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

0.09 = ₪76m ÷ (₪1.5b - ₪614m) (Based on the trailing twelve months to September 2024).

Therefore, Rimon Consulting & Management Services has an ROCE of 9.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.0%.

View 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 Does the ROCE Trend For Rimon Consulting & Management Services Tell Us?

The returns on capital haven't changed much for Rimon Consulting & Management Services in recent years. The company has consistently earned 9.0% for the last three years, and the capital employed within the business has risen 110% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, Rimon Consulting & Management Services' 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.

What We Can Learn From Rimon Consulting & Management Services' ROCE

As we've seen above, Rimon Consulting & Management Services' returns on capital haven't increased but it is reinvesting in the business. And investors appear hesitant that the trends will pick up because the stock has fallen 11% in the last three years. Therefore based on the analysis done in this article, we don't think Rimon Consulting & Management Services has the makings of a multi-bagger.

Like most companies, Rimon Consulting & Management Services does come with some risks, and we've found 1 warning sign that 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.