Stock Analysis

Brill Shoe Industries (TLV:BRIL) Shareholders Will Want The ROCE Trajectory To Continue

TASE:BRIL
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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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Brill Shoe Industries (TLV:BRIL) looks quite promising in regards to its trends of return on capital.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Brill Shoe Industries is:

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

0.052 = ₪17m ÷ (₪480m - ₪157m) (Based on the trailing twelve months to December 2020).

Therefore, Brill Shoe Industries has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Luxury industry average of 8.7%.

See our latest analysis for Brill Shoe Industries

roce
TASE:BRIL Return on Capital Employed May 17th 2021

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're interested in investigating Brill Shoe Industries' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Brill Shoe Industries 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. The data shows that returns on capital have increased substantially over the last five years to 5.2%. The amount of capital employed has increased too, by 59%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

One more thing to note, Brill Shoe Industries has decreased current liabilities to 33% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

What We Can Learn From Brill Shoe Industries' ROCE

To sum it up, Brill Shoe Industries has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 41% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing Brill Shoe Industries, we've discovered 2 warning signs that you should be aware of.

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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