Rami Levi Chain Stores Hashikma Marketing 2006 (TLV:RMLI) May Have Issues Allocating Its Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. 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.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Rami Levi Chain Stores Hashikma Marketing 2006, this is the formula:

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

0.15 = ₪358m ÷ (₪4.3b - ₪1.9b) (Based on the trailing twelve months to March 2022).

So, Rami Levi Chain Stores Hashikma Marketing 2006 has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Consumer Retailing industry average of 11% it's much better.

Check out our latest analysis for Rami Levi Chain Stores Hashikma Marketing 2006

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Rami Levi Chain Stores Hashikma Marketing 2006 has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Rami Levi Chain Stores Hashikma Marketing 2006's ROCE Trending?

When we looked at the ROCE trend at Rami Levi Chain Stores Hashikma Marketing 2006, we didn't gain much confidence. To be more specific, ROCE has fallen from 35% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. 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 43% 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. Either way, they're still at a pretty high level, so we'd like to see them fall further if possible.

The Bottom Line On Rami Levi Chain Stores Hashikma Marketing 2006's ROCE

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. Since the stock has gained an impressive 81% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

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

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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.