Stock Analysis

Returns Are Gaining Momentum At Brill Shoe Industries (TLV:BRIL)

TASE:BRIL
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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?

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 Brill Shoe Industries is:

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

0.16 = ₪54m ÷ (₪496m - ₪149m) (Based on the trailing twelve months to June 2021).

So, Brill Shoe Industries has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 9.8% it's much better.

View our latest analysis for Brill Shoe Industries

roce
TASE:BRIL Return on Capital Employed November 4th 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'd like to look at how Brill Shoe Industries has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Brill Shoe Industries' ROCE Trending?

Brill Shoe Industries is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 72% more capital is being employed now too. 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 30% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Brill Shoe Industries has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Brill Shoe Industries' ROCE

In summary, it's great to see that Brill Shoe Industries 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 a remarkable 172% 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.

On a final note, we've found 2 warning signs for Brill Shoe Industries that we think you should be aware of.

While Brill Shoe Industries 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.

Valuation is complex, but we're helping make it simple.

Find out whether Brill Shoe Industries is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.

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