Stock Analysis

We Like These Underlying Return On Capital Trends At Endymed (TLV:ENDY)

TASE:ENDY
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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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Endymed's (TLV:ENDY) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Endymed:

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

0.035 = US$368k ÷ (US$14m - US$3.2m) (Based on the trailing twelve months to December 2020).

Therefore, Endymed has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 6.4%.

Check out our latest analysis for Endymed

roce
TASE:ENDY Return on Capital Employed April 11th 2021

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

What Can We Tell From Endymed's ROCE Trend?

We're delighted to see that Endymed is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 3.5% on its capital. In addition to that, Endymed is employing 27% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Endymed's ROCE

In summary, it's great to see that Endymed has managed to break into profitability and is continuing to reinvest in its business. Although the company may be facing some issues elsewhere since the stock has plunged 73% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

One more thing to note, we've identified 3 warning signs with Endymed and understanding these should be part of your investment process.

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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