Bram Industries (TLV:BRAM) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Bram Industries' (TLV:BRAM) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

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 Bram Industries:

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

0.11 = ₪12m ÷ (₪160m - ₪58m) (Based on the trailing twelve months to December 2020).

Thus, Bram Industries has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Packaging industry.

View our latest analysis for Bram Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bram Industries' ROCE against it's prior returns. If you'd like to look at how Bram Industries has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Bram Industries' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 38% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. 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

As discussed above, Bram Industries appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And since the stock has fallen 43% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 3 warning signs we've spotted with Bram Industries (including 1 which makes us a bit uncomfortable) .

While Bram Industries isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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