Albaad Massuot Yitzhak (TLV:ALBA) Will Be Hoping To Turn Its Returns On Capital Around

What underlying fundamental trends can indicate that a company might be in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. And from a first read, things don't look too good at Albaad Massuot Yitzhak (TLV:ALBA), so let's see why.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Albaad Massuot Yitzhak is:

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

0.0031 = ₪3.2m ÷ (₪1.6b - ₪580m) (Based on the trailing twelve months to March 2022).

Thus, Albaad Massuot Yitzhak has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the Household Products industry average of 11%.

Check out our latest analysis for Albaad Massuot Yitzhak

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

How Are Returns Trending?

In terms of Albaad Massuot Yitzhak's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 10% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Albaad Massuot Yitzhak becoming one if things continue as they have.

What We Can Learn From Albaad Massuot Yitzhak's ROCE

In summary, it's unfortunate that Albaad Massuot Yitzhak is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 66% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Albaad Massuot Yitzhak does have some risks, we noticed 3 warning signs (and 2 which are a bit concerning) we think you should know about.

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. 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.