Here's What's Concerning About Fattal Holdings (1998)'s (TLV:FTAL) Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. In light of that, when we looked at Fattal Holdings (1998) (TLV:FTAL) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Fattal Holdings (1998) is:

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

0.047 = ₪1.1b ÷ (₪27b - ₪2.8b) (Based on the trailing twelve months to December 2023).

So, Fattal Holdings (1998) has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 9.2%.

Check out our latest analysis for Fattal Holdings (1998)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fattal Holdings (1998)'s ROCE against it's prior returns. If you're interested in investigating Fattal Holdings (1998)'s past further, check out this free graph covering Fattal Holdings (1998)'s past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Fattal Holdings (1998)'s historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 6.8% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Fattal Holdings (1998)'s ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Fattal Holdings (1998) is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 17% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

On a final note, we've found 1 warning sign for Fattal Holdings (1998) that we think you should be aware of.

While Fattal Holdings (1998) 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.