Returns At Rapac Communication & Infrastructure (TLV:RPAC) Are On The Way Up

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Rapac Communication & Infrastructure (TLV:RPAC) so let's look a bit deeper.

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 Rapac Communication & Infrastructure, this is the formula:

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

0.047 = ₪121m ÷ (₪3.1b - ₪543m) (Based on the trailing twelve months to September 2022).

So, Rapac Communication & Infrastructure has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Construction industry average of 6.8%.

View our latest analysis for Rapac Communication & Infrastructure

Historical performance is a great place to start when researching a stock so above you can see the gauge for Rapac Communication & Infrastructure's ROCE against it's prior returns. If you're interested in investigating Rapac Communication & Infrastructure's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 4.7%. Basically the business is earning more per dollar of capital invested and in addition to that, 175% more capital is being employed now too. So we're very much inspired by what we're seeing at Rapac Communication & Infrastructure thanks to its ability to profitably reinvest capital.

What We Can Learn From Rapac Communication & Infrastructure's ROCE

To sum it up, Rapac Communication & Infrastructure has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 192% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, Rapac Communication & Infrastructure does come with some risks, and we've found 2 warning signs that you should be aware of.

While Rapac Communication & Infrastructure 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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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.