Will The ROCE Trend At Aran Research & Development (1982) (TLV:ARAN) Continue?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Aran Research & Development (1982) (TLV:ARAN) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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)

0.0016 = ₪129k ÷ (₪118m - ₪37m) (Based on the trailing twelve months to June 2020).

So, Aran Research & Development (1982) has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 8.1%.

See 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.

What Does the ROCE Trend For Aran Research & Development (1982) Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 0.2%. The amount of capital employed 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. And since the stock has fallen 46% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about Aran Research & Development (1982), we've spotted 4 warning signs, and 1 of them shouldn't be ignored.

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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