The Returns At M.Yochananof and Sons (1988) (TLV:YHNF) Provide Us With Signs Of What's To Come

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think M.Yochananof and Sons (1988) (TLV:YHNF) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on M.Yochananof and Sons (1988) is:

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

0.11 = ₪188m ÷ (₪2.2b - ₪508m) (Based on the trailing twelve months to June 2020).

Thus, M.Yochananof and Sons (1988) has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

See our latest analysis for M.Yochananof and Sons (1988)

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 want to delve into the historical earnings, revenue and cash flow of M.Yochananof and Sons (1988), check out these free graphs here.

So How Is M.Yochananof and Sons (1988)'s ROCE Trending?

In terms of M.Yochananof and Sons (1988)'s historical ROCE movements, the trend isn't fantastic. Over the last three years, returns on capital have decreased to 11% from 28% three years ago. 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 may take some time before the company starts to see any change in earnings from these investments.

On a side note, M.Yochananof and Sons (1988) has done well to pay down its current liabilities to 23% 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.

In Conclusion...

To conclude, we've found that M.Yochananof and Sons (1988) is reinvesting in the business, but returns have been falling. Unsurprisingly then, the total return to shareholders over the last year has been flat. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you want to continue researching M.Yochananof and Sons (1988), you might be interested to know about the 1 warning sign that our analysis has discovered.

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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