Returns On Capital - An Important Metric For Albaad Massuot Yitzhak (TLV:ALBA)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Albaad Massuot Yitzhak (TLV:ALBA) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Albaad Massuot Yitzhak is:

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

0.16 = ₪131m ÷ (₪1.3b - ₪436m) (Based on the trailing twelve months to September 2020).

So, Albaad Massuot Yitzhak has an ROCE of 16%. That's a pretty standard return and it's in line with the industry average of 16%.

Check out our latest analysis for Albaad Massuot Yitzhak

Historical performance is a great place to start when researching a stock so above you can see the gauge for Albaad Massuot Yitzhak's ROCE against it's prior returns. 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?

Albaad Massuot Yitzhak has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 69% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Albaad Massuot Yitzhak's ROCE

In summary, we're delighted to see that Albaad Massuot Yitzhak has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 205% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One final note, you should learn about the 5 warning signs we've spotted with Albaad Massuot Yitzhak (including 1 which is a bit concerning) .

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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