Rotem Shani Entrepreneurship and Investment (TLV:RTSN) Is Reinvesting To Multiply In Value

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 ran our eye over Rotem Shani Entrepreneurship and Investment's (TLV:RTSN) trend of ROCE, we really liked what we saw.

What Is 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. The formula for this calculation on Rotem Shani Entrepreneurship and Investment is:

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

0.33 = ₪97m ÷ (₪646m - ₪355m) (Based on the trailing twelve months to March 2024).

Therefore, Rotem Shani Entrepreneurship and Investment has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 17%.

See our latest analysis for Rotem Shani Entrepreneurship and Investment

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

What The Trend Of ROCE Can Tell Us

Rotem Shani Entrepreneurship and Investment deserves to be commended in regards to it's returns. Over the past one year, ROCE has remained relatively flat at around 33% and the business has deployed 58% more capital into its operations. Now considering ROCE is an attractive 33%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.

One more thing to note, even though ROCE has remained relatively flat over the last one year, the reduction in current liabilities to 55% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

Our Take On Rotem Shani Entrepreneurship and Investment's ROCE

In short, we'd argue Rotem Shani Entrepreneurship and Investment has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has followed suit returning a meaningful 57% to shareholders over the last three years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing: We've identified 4 warning signs with Rotem Shani Entrepreneurship and Investment (at least 2 which are a bit unpleasant) , and understanding these would certainly be useful.

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.