We Like These Underlying Return On Capital Trends At Aran Research & Development (1982) (TLV:ARAN)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. So when we looked at Aran Research & Development (1982) (TLV:ARAN) and its trend of ROCE, we really liked what we saw.

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Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Aran Research & Development (1982):

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

0.072 = ₪9.5m ÷ (₪192m - ₪61m) (Based on the trailing twelve months to December 2024).

Thus, Aran Research & Development (1982) has an ROCE of 7.2%. Even though it's in line with the industry average of 7.2%, it's still a low return by itself.

View our latest analysis for Aran Research & Development (1982)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Aran Research & Development (1982)'s ROCE against it's prior returns. If you're interested in investigating Aran Research & Development (1982)'s past further, check out this free graph covering Aran Research & Development (1982)'s past earnings, revenue and cash flow.

So How Is Aran Research & Development (1982)'s ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.2%. Basically the business is earning more per dollar of capital invested and in addition to that, 71% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Aran Research & Development (1982)'s ROCE

All in all, it's terrific to see that Aran Research & Development (1982) is reaping the rewards from prior investments and is growing its capital base. 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.

Aran Research & Development (1982) does have some risks though, and we've spotted 3 warning signs for Aran Research & Development (1982) that you might be interested in.

While Aran Research & Development (1982) 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.