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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Rimoni Industries' (TLV:RIMO) look very promising so lets take 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 Rimoni Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.29 = ₪46m ÷ (₪223m - ₪65m) (Based on the trailing twelve months to December 2020).
Therefore, Rimoni Industries has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 16%.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Rimoni Industries' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Rimoni Industries, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
Rimoni Industries has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 80% in that same time. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 29% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.
Our Take On Rimoni Industries' ROCE
In summary, we're delighted to see that Rimoni Industries has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 284% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.
On a separate note, we've found 1 warning sign for Rimoni Industries you'll probably want to know about.
Rimoni Industries is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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Rimoni Industries Ltd. engages in the design, engineering, and manufacturing of molds, and precise injection molding and assemblies for the medical, automotive, agricultural, high-tech, and consumer industries in Israel.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
|Analysis Area||Score (0-6)|
Read more about these checks in the individual report sections or in our analysis model.
Excellent balance sheet and fair value.