Will the Promising Trends At Salomon A. Angel (TLV:ANGL) Continue?

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Salomon A. Angel's (TLV:ANGL) returns on capital, so let's have a look.

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 Salomon A. Angel:

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

0.0036 = ₪709k ÷ (₪329m - ₪134m) (Based on the trailing twelve months to June 2020).

So, Salomon A. Angel has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Food industry average of 12%.

Check out our latest analysis for Salomon A. Angel

Historical performance is a great place to start when researching a stock so above you can see the gauge for Salomon A. Angel's ROCE against it's prior returns. If you'd like to look at how Salomon A. Angel has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Salomon A. Angel has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 0.4% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Salomon A. Angel has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

On a separate but related note, it's important to know that Salomon A. Angel has a current liabilities to total assets ratio of 41%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Salomon A. Angel's ROCE

As discussed above, Salomon A. Angel appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 111% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to know some of the risks facing Salomon A. Angel we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

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. 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.
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