Capital Allocation Trends At Dan Hotels (TLV:DANH) Aren't Ideal

What underlying fundamental trends can indicate that a company might be in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after we looked into Dan Hotels (TLV:DANH), the trends above didn't look too great.

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Understanding 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. Analysts use this formula to calculate it for Dan Hotels:

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

0.0085 = ₪14m ÷ (₪2.5b - ₪783m) (Based on the trailing twelve months to March 2025).

So, Dan Hotels has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 6.3%.

Check out our latest analysis for Dan Hotels

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 Dan Hotels has performed in the past in other metrics, you can view this free graph of Dan Hotels' past earnings, revenue and cash flow.

What Does the ROCE Trend For Dan Hotels Tell Us?

In terms of Dan Hotels' historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 7.6% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Dan Hotels to turn into a multi-bagger.

Our Take On Dan Hotels' ROCE

In summary, it's unfortunate that Dan Hotels is generating lower returns from the same amount of capital. In spite of that, the stock has delivered a 16% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

One more thing to note, we've identified 2 warning signs with Dan Hotels and understanding them should be part of your investment process.

While Dan Hotels may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.