Here's What's Concerning About Shaniv Paper Industry's (TLV:SHAN) 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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Shaniv Paper Industry (TLV:SHAN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Shaniv Paper Industry:

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

0.078 = ₪46m ÷ (₪1.0b - ₪464m) (Based on the trailing twelve months to September 2024).

Therefore, Shaniv Paper Industry has an ROCE of 7.8%. In absolute terms, that's a low return but it's around the Forestry industry average of 7.1%.

See our latest analysis for Shaniv Paper Industry

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

So How Is Shaniv Paper Industry's ROCE Trending?

On the surface, the trend of ROCE at Shaniv Paper Industry doesn't inspire confidence. To be more specific, ROCE has fallen from 11% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a separate but related note, it's important to know that Shaniv Paper Industry has a current liabilities to total assets ratio of 44%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Shaniv Paper Industry's ROCE

In summary, Shaniv Paper Industry is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be recognizing these trends since the stock has only returned a total of 25% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Shaniv Paper Industry (of which 2 are potentially serious!) that you should know about.

While Shaniv Paper Industry 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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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.