Returns On Capital At Azorim-Investment Development & Construction (TLV:AZRM) Have Hit The Brakes

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. 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 Azorim-Investment Development & Construction (TLV:AZRM), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Azorim-Investment Development & Construction:

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

0.065 = ₪283m ÷ (₪7.3b - ₪3.0b) (Based on the trailing twelve months to June 2024).

Therefore, Azorim-Investment Development & Construction has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 17%.

See our latest analysis for Azorim-Investment Development & Construction

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

So How Is Azorim-Investment Development & Construction's ROCE Trending?

The returns on capital haven't changed much for Azorim-Investment Development & Construction in recent years. Over the past five years, ROCE has remained relatively flat at around 6.5% and the business has deployed 114% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 41% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

What We Can Learn From Azorim-Investment Development & Construction's ROCE

As we've seen above, Azorim-Investment Development & Construction's returns on capital haven't increased but it is reinvesting in the business. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 150% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know more about Azorim-Investment Development & Construction, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

While Azorim-Investment Development & Construction may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.