Will The ROCE Trend At Azorim-Investment Development & Construction (TLV:AZRM) Continue?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Azorim-Investment Development & Construction (TLV:AZRM) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Azorim-Investment Development & Construction, this is the formula:

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

0.059 = ₪135m ÷ (₪4.0b - ₪1.7b) (Based on the trailing twelve months to September 2020).

Thus, Azorim-Investment Development & Construction has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 9.9%.

View our latest analysis for Azorim-Investment Development & Construction

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Azorim-Investment Development & Construction has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Azorim-Investment Development & Construction's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 5.9%. 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 31%. So we're very much inspired by what we're seeing at Azorim-Investment Development & Construction thanks to its ability to profitably reinvest capital.

One more thing to note, Azorim-Investment Development & Construction has decreased current liabilities to 43% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Azorim-Investment Development & Construction has. And a remarkable 264% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One final note, you should learn about the 3 warning signs we've spotted with Azorim-Investment Development & Construction (including 1 which is a bit unpleasant) .

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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