Danel (Adir Yeoshua) (TLV:DANE) Knows How To Allocate Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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, the ROCE of Danel (Adir Yeoshua) (TLV:DANE) looks attractive right now, so lets see what the trend of returns can tell us.

What is 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. The formula for this calculation on Danel (Adir Yeoshua) is:

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

0.33 = ₪209m ÷ (₪1.1b - ₪442m) (Based on the trailing twelve months to March 2021).

So, Danel (Adir Yeoshua) has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 13%.

Check out our latest analysis for Danel (Adir Yeoshua)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Danel (Adir Yeoshua)'s ROCE against it's prior returns. If you'd like to look at how Danel (Adir Yeoshua) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

It's hard not to be impressed by Danel (Adir Yeoshua)'s returns on capital. The company has consistently earned 33% for the last five years, and the capital employed within the business has risen 191% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

Another thing to note, Danel (Adir Yeoshua) has a high ratio of current liabilities to total assets of 41%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And long term investors would be thrilled with the 527% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing to note, we've identified 1 warning sign with Danel (Adir Yeoshua) and understanding this should be part of your investment process.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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