Returns On Capital Signal Tricky Times Ahead For Fattal Holdings (1998) (TLV:FTAL)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Fattal Holdings (1998), this is the formula:

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

0.0066 = ₪126m ÷ (₪22b - ₪2.4b) (Based on the trailing twelve months to September 2021).

Therefore, Fattal Holdings (1998) has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 3.1%.

Check out our latest analysis for Fattal Holdings (1998)

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 Fattal Holdings (1998) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Fattal Holdings (1998)'s ROCE Trend?

The trend of ROCE doesn't look fantastic because it's fallen from 6.9% five years ago, while the business's capital employed increased by 396%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Fattal Holdings (1998)'s earnings and if they change as a result from the capital raise.

Our Take On Fattal Holdings (1998)'s ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Fattal Holdings (1998) have fallen, meanwhile the business is employing more capital than it was five years ago. Despite the concerning underlying trends, the stock has actually gained 4.9% over the last three years, so it might be that the investors are expecting the trends to reverse. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

Fattal Holdings (1998) does have some risks though, and we've spotted 1 warning sign for Fattal Holdings (1998) that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.