We're Watching These Trends At N.R. Spuntech Industries (TLV:SPNTC)

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So while N.R. Spuntech Industries (TLV:SPNTC) has a high ROCE right now, lets see what we can decipher from how returns are changing.

What is 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 N.R. Spuntech Industries is:

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

0.20 = ₪89m ÷ (₪614m - ₪180m) (Based on the trailing twelve months to September 2020).

Therefore, N.R. Spuntech Industries has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 13%.

See our latest analysis for N.R. Spuntech Industries

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 N.R. Spuntech Industries' past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

There hasn't been much to report for N.R. Spuntech Industries' returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So it may not be a multi-bagger in the making, but given the decent 20% return on capital, it'd be difficult to find fault with the business's current operations.

The Bottom Line On N.R. Spuntech Industries' ROCE

In summary, N.R. Spuntech Industries isn't compounding its earnings but is generating decent returns on the same amount of capital employed. And in the last five years, the stock has given away 13% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a final note, we found 3 warning signs for N.R. Spuntech Industries (1 is potentially serious) you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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