Will Aran Research & Development (1982)'s (TLV:ARAN) Growth In ROCE Persist?

What trends should we look for it we want to identify stocks that can 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Aran Research & Development (1982) (TLV:ARAN) so let's look a bit deeper.

What is 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. The formula for this calculation on Aran Research & Development (1982) is:

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

0.028 = ₪2.3m ÷ (₪118m - ₪37m) (Based on the trailing twelve months to September 2020).

So, Aran Research & Development (1982) has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 8.3%.

Check out 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 of past earnings, revenue and cash flow.

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

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 2.8%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 33%. So we're very much inspired by what we're seeing at Aran Research & Development (1982) thanks to its ability to profitably reinvest capital.

In Conclusion...

In summary, it's great to see that Aran Research & Development (1982) can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Given the stock has declined 34% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

Like most companies, Aran Research & Development (1982) does come with some risks, and we've found 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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