We Think Brill Shoe Industries (TLV:BRIL) Might Have The DNA Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. So when we looked at the ROCE trend of Brill Shoe Industries (TLV:BRIL) we really liked what we saw.

Understanding 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. To calculate this metric for Brill Shoe Industries, this is the formula:

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

0.21 = ₪68m ÷ (₪480m - ₪149m) (Based on the trailing twelve months to December 2021).

Therefore, Brill Shoe Industries has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Luxury industry average of 11%.

See our latest analysis for Brill Shoe Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Brill Shoe Industries' ROCE against it's prior returns. 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.

What The Trend Of ROCE Can Tell Us

The fact that Brill Shoe Industries is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 21% on its capital. In addition to that, Brill Shoe Industries is employing 85% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, Brill Shoe Industries has decreased current liabilities to 31% 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.

Our Take On Brill Shoe Industries' ROCE

To the delight of most shareholders, Brill Shoe Industries has now broken into profitability. And a remarkable 115% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Brill Shoe Industries can keep these trends up, it could have a bright future ahead.

If you want to continue researching Brill Shoe Industries, you might be interested to know about the 4 warning signs that our analysis has discovered.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.