Under The Bonnet, Palram Industries (1990)'s (TLV:PLRM) Returns Look Impressive

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Palram Industries (1990) (TLV:PLRM) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Palram Industries (1990) is:

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

0.23 = ₪211m ÷ (₪1.3b - ₪375m) (Based on the trailing twelve months to June 2020).

Thus, Palram Industries (1990) has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 15%.

View our latest analysis for Palram Industries (1990)

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 want to delve into the historical earnings, revenue and cash flow of Palram Industries (1990), check out these free graphs here.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Palram Industries (1990). The data shows that returns on capital have increased substantially over the last five years to 23%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 28%. So we're very much inspired by what we're seeing at Palram Industries (1990) thanks to its ability to profitably reinvest capital.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Palram Industries (1990) has. Since the stock has returned a solid 61% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Palram Industries (1990) can keep these trends up, it could have a bright future ahead.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Palram Industries (1990) (of which 1 shouldn't be ignored!) that you should know about.

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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