Investors Could Be Concerned With Rami Levi Chain Stores Hashikma Marketing 2006's (TLV:RMLI) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Rami Levi Chain Stores Hashikma Marketing 2006 (TLV:RMLI), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Rami Levi Chain Stores Hashikma Marketing 2006:

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

0.14 = ₪336m ÷ (₪4.2b - ₪1.7b) (Based on the trailing twelve months to September 2022).

Thus, Rami Levi Chain Stores Hashikma Marketing 2006 has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Consumer Retailing industry average of 8.9% it's much better.

See our latest analysis for Rami Levi Chain Stores Hashikma Marketing 2006

Historical performance is a great place to start when researching a stock so above you can see the gauge for Rami Levi Chain Stores Hashikma Marketing 2006's ROCE against it's prior returns. If you're interested in investigating Rami Levi Chain Stores Hashikma Marketing 2006's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Rami Levi Chain Stores Hashikma Marketing 2006's ROCE Trend?

When we looked at the ROCE trend at Rami Levi Chain Stores Hashikma Marketing 2006, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 14% from 35% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Rami Levi Chain Stores Hashikma Marketing 2006 has done well to pay down its current liabilities to 41% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money. Keep in mind 41% is still pretty high, so those risks are still somewhat prevalent.

In Conclusion...

In summary, Rami Levi Chain Stores Hashikma Marketing 2006 is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly, the stock has only gained 39% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One more thing, we've spotted 1 warning sign facing Rami Levi Chain Stores Hashikma Marketing 2006 that you might find interesting.

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.