What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Y.Z. Queenco (TLV:QNCO), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on Y.Z. Queenco is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.045 = ₪6.4m ÷ (₪178m - ₪38m) (Based on the trailing twelve months to June 2022).
Thus, Y.Z. Queenco has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 6.3%.
See our latest analysis for Y.Z. Queenco
Historical performance is a great place to start when researching a stock so above you can see the gauge for Y.Z. Queenco's ROCE against it's prior returns. If you're interested in investigating Y.Z. Queenco's past further, check out this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
On the surface, the trend of ROCE at Y.Z. Queenco doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.5% from 13% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
Our Take On Y.Z. Queenco's ROCE
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Y.Z. Queenco. These growth trends haven't led to growth returns though, since the stock has fallen 18% over the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.
If you'd like to know more about Y.Z. Queenco, we've spotted 3 warning signs, and 1 of them is a bit concerning.
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.
About TASE:QNCO
Flawless balance sheet with solid track record.
