Golden House (TLV:GOHO) Hasn't Managed To Accelerate Its Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Golden House (TLV:GOHO) and its ROCE trend, we weren't exactly thrilled.

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 Golden House:

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

0.034 = ₪21m ÷ (₪817m - ₪207m) (Based on the trailing twelve months to March 2023).

Thus, Golden House has an ROCE of 3.4%. On its own, that's a low figure but it's around the 3.5% average generated by the Healthcare industry.

See our latest analysis for Golden House

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're interested in investigating Golden House's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Golden House's ROCE Trend?

The returns on capital haven't changed much for Golden House in recent years. Over the past five years, ROCE has remained relatively flat at around 3.4% and the business has deployed 29% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Golden House's ROCE

As we've seen above, Golden House's returns on capital haven't increased but it is reinvesting in the business. And in the last five years, the stock has given away 25% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Golden House does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is potentially serious...

While Golden House may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.