There Are Reasons To Feel Uneasy About Fattal Holdings (1998)'s (TLV:FTAL) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Fattal Holdings (1998) (TLV:FTAL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

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

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

0.013 = ₪239m ÷ (₪21b - ₪2.1b) (Based on the trailing twelve months to December 2021).

Therefore, Fattal Holdings (1998) has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 2.6%.

View 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 want to delve into the historical earnings, revenue and cash flow of Fattal Holdings (1998), check out these free graphs here.

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

On the surface, the trend of ROCE at Fattal Holdings (1998) doesn't inspire confidence. To be more specific, ROCE has fallen from 6.6% 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Fattal Holdings (1998)'s ROCE

While returns have fallen for Fattal Holdings (1998) in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 21% over the last three years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

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.

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.