Returns On Capital At Neto Malinda Trading (TLV:NTML) Have Stalled

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Neto Malinda Trading's (TLV:NTML) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Neto Malinda Trading is:

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

0.16 = ₪209m ÷ (₪2.0b - ₪768m) (Based on the trailing twelve months to September 2022).

So, Neto Malinda Trading has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Food industry average of 15%.

View our latest analysis for Neto Malinda Trading

Historical performance is a great place to start when researching a stock so above you can see the gauge for Neto Malinda Trading's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Neto Malinda Trading, check out these free graphs here.

So How Is Neto Malinda Trading's ROCE Trending?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 64% more capital into its operations. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

The main thing to remember is that Neto Malinda Trading has proven its ability to continually reinvest at respectable rates of return. Therefore it's no surprise that shareholders have earned a respectable 59% return if they held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Neto Malinda Trading does have some risks though, and we've spotted 1 warning sign for Neto Malinda Trading that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.