Be Wary Of Kafrit Industries (1993) (TLV:KAFR) And Its Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Kafrit Industries (1993) (TLV:KAFR) 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. The formula for this calculation on Kafrit Industries (1993) is:

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

0.10 = ₪65m ÷ (₪907m - ₪281m) (Based on the trailing twelve months to June 2023).

Therefore, Kafrit Industries (1993) has an ROCE of 10%. That's a pretty standard return and it's in line with the industry average of 10%.

Check out our latest analysis for Kafrit Industries (1993)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kafrit Industries (1993)'s ROCE against it's prior returns. If you'd like to look at how Kafrit Industries (1993) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Kafrit Industries (1993)'s ROCE Trending?

When we looked at the ROCE trend at Kafrit Industries (1993), we didn't gain much confidence. Over the last five years, returns on capital have decreased to 10% from 17% five years ago. However it looks like Kafrit Industries (1993) might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

In summary, Kafrit Industries (1993) is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 20% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing to note, we've identified 4 warning signs with Kafrit Industries (1993) and understanding these should be part of your investment process.

While Kafrit Industries (1993) 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.