Stock Analysis

Delta Galil Industries' (TLV:DELG) Returns On Capital Are Heading Higher

TASE:DELG
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. 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 when we looked at Delta Galil Industries (TLV:DELG) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Delta Galil Industries, this is the formula:

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

0.15 = US$184m ÷ (US$1.9b - US$611m) (Based on the trailing twelve months to December 2022).

Therefore, Delta Galil Industries has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 10% generated by the Luxury industry.

Check out our latest analysis for Delta Galil Industries

roce
TASE:DELG Return on Capital Employed May 2nd 2023

Historical performance is a great place to start when researching a stock so above you can see the gauge for Delta Galil Industries' ROCE against it's prior returns. If you'd like to look at how Delta Galil Industries has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

SWOT Analysis for Delta Galil Industries

Strength
  • Debt is well covered by earnings.
Weakness
  • Earnings declined over the past year.
  • Dividend is low compared to the top 25% of dividend payers in the Luxury market.
  • Current share price is above our estimate of fair value.
  • Shareholders have been diluted in the past year.
Opportunity
  • DELG's financial characteristics indicate limited near-term opportunities for shareholders.
  • Lack of analyst coverage makes it difficult to determine DELG's earnings prospects.
Threat
  • Debt is not well covered by operating cash flow.
  • Paying a dividend but company has no free cash flows.

So How Is Delta Galil Industries' ROCE Trending?

We like the trends that we're seeing from Delta Galil Industries. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. 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 63%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

In summary, it's great to see that Delta Galil 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 with a respectable 47% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know about the risks facing Delta Galil Industries, we've discovered 1 warning sign that you should be aware of.

While Delta Galil Industries isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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

Find out whether Delta Galil 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.