Netanel Group's (TLV:NTGR) Returns On Capital Are Heading Higher

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Netanel Group (TLV:NTGR) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Netanel Group is:

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

0.074 = ₪73m ÷ (₪1.6b - ₪618m) (Based on the trailing twelve months to September 2022).

Therefore, Netanel Group has an ROCE of 7.4%. On its own, that's a low figure but it's around the 6.4% average generated by the Consumer Durables industry.

See our latest analysis for Netanel Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Netanel Group's ROCE against it's prior returns. If you're interested in investigating Netanel Group's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 7.4%. The amount of capital employed has increased too, by 159%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Netanel Group's ROCE

All in all, it's terrific to see that Netanel Group is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 47% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One final note, you should learn about the 5 warning signs we've spotted with Netanel Group (including 2 which can't be ignored) .

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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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.