If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Y.Z. Queenco's (TLV:QNCO) trend of ROCE, we liked what we saw.
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 Y.Z. Queenco:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = ₪17m ÷ (₪193m - ₪38m) (Based on the trailing twelve months to June 2023).
Therefore, Y.Z. Queenco has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.0% generated by the Hospitality industry.
See our latest analysis for Y.Z. Queenco
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 Y.Z. Queenco has performed in the past in other metrics, you can view this free graph of Y.Z. Queenco's past earnings, revenue and cash flow.
The Trend Of ROCE
While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 27% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that Y.Z. Queenco has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
Our Take On Y.Z. Queenco's ROCE
The main thing to remember is that Y.Z. Queenco has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 60% over the last five years, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
On a final note, we've found 4 warning signs for Y.Z. Queenco that we think you should be aware of.
While Y.Z. Queenco isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
About TASE:QNCO
Flawless balance sheet with solid track record.
