Returns At Hamama Meir Trading (1996) (TLV:HMAM) Are On The Way Up

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Hamama Meir Trading (1996) (TLV:HMAM) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Hamama Meir Trading (1996), this is the formula:

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

0.13 = ₪12m ÷ (₪186m - ₪95m) (Based on the trailing twelve months to June 2021).

So, Hamama Meir Trading (1996) has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.

Check out our latest analysis for Hamama Meir Trading (1996)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hamama Meir Trading (1996)'s ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Hamama Meir Trading (1996), check out these free graphs here.

How Are Returns Trending?

It's great to see that Hamama Meir Trading (1996) has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 13% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 33% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

Another thing to note, Hamama Meir Trading (1996) has a high ratio of current liabilities to total assets of 51%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Hamama Meir Trading (1996)'s ROCE

From what we've seen above, Hamama Meir Trading (1996) has managed to increase it's returns on capital all the while reducing it's capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 45% return over the last five years. In light of that, we think it's worth looking further into this stock because if Hamama Meir Trading (1996) can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Hamama Meir Trading (1996), we've discovered 3 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.