Some Investors May Be Worried About Shapir Engineering and Industry's (TLV:SPEN) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Although, when we looked at Shapir Engineering and Industry (TLV:SPEN), it didn't seem to tick all of these boxes.

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What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Shapir Engineering and Industry is:

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

0.032 = ₪396m ÷ (₪16b - ₪3.7b) (Based on the trailing twelve months to June 2025).

Therefore, Shapir Engineering and Industry has an ROCE of 3.2%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 6.8%.

View our latest analysis for Shapir Engineering and Industry

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'd like to look at how Shapir Engineering and Industry has performed in the past in other metrics, you can view this free graph of Shapir Engineering and Industry's past earnings, revenue and cash flow.

So How Is Shapir Engineering and Industry's ROCE Trending?

On the surface, the trend of ROCE at Shapir Engineering and Industry doesn't inspire confidence. Around five years ago the returns on capital were 7.1%, but since then they've fallen to 3.2%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Shapir Engineering and Industry is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 13% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Shapir Engineering and Industry does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are significant...

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.