Why We Like The Returns At Neto Malinda Trading (TLV:NTML)

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Neto Malinda Trading's (TLV:NTML) look very promising so lets take a look.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Neto Malinda Trading:

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

0.21 = ₪243m ÷ (₪1.7b - ₪552m) (Based on the trailing twelve months to March 2022).

Therefore, Neto Malinda Trading has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Food industry average of 17%.

Check out our latest analysis for Neto Malinda Trading

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 Neto Malinda Trading has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Neto Malinda Trading Tell Us?

The trends we've noticed at Neto Malinda Trading are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 41% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

To sum it up, Neto Malinda Trading has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 145% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Neto Malinda Trading does have some risks, we noticed 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Neto Malinda Trading is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.