Polyram Plastic Industries (TLV:POLP) Is Experiencing Growth In Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Polyram Plastic Industries (TLV:POLP) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Polyram Plastic Industries, this is the formula:

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

0.19 = ₪142m ÷ (₪1.1b - ₪389m) (Based on the trailing twelve months to March 2022).

Therefore, Polyram Plastic Industries has an ROCE of 19%. By itself that's a normal return on capital and it's in line with the industry's average returns of 19%.

Check out our latest analysis for Polyram Plastic 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'd like to look at how Polyram Plastic Industries has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Polyram Plastic Industries' ROCE Trend?

Investors would be pleased with what's happening at Polyram Plastic Industries. The data shows that returns on capital have increased substantially over the last three years to 19%. The amount of capital employed has increased too, by 41%. So we're very much inspired by what we're seeing at Polyram Plastic Industries thanks to its ability to profitably reinvest capital.

Our Take On Polyram Plastic Industries' ROCE

In summary, it's great to see that Polyram Plastic Industries can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 15% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know more about Polyram Plastic Industries, we've spotted 4 warning signs, and 2 of them are significant.

While Polyram Plastic Industries 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.