Slowing Rates Of Return At Brimag Digital Age (TLV:BRMG) Leave Little Room For Excitement

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Brimag Digital Age's (TLV:BRMG) ROCE trend, we were pretty happy with what we saw.

Understanding 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 Brimag Digital Age, this is the formula:

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

0.16 = ₪55m ÷ (₪619m - ₪277m) (Based on the trailing twelve months to March 2022).

Therefore, Brimag Digital Age has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 8.1% generated by the Retail Distributors industry.

View our latest analysis for Brimag Digital Age

Historical performance is a great place to start when researching a stock so above you can see the gauge for Brimag Digital Age's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Brimag Digital Age, check out these free graphs here.

So How Is Brimag Digital Age's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 59% more capital into its operations. 16% is a pretty standard return, and it provides some comfort knowing that Brimag Digital Age has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a separate but related note, it's important to know that Brimag Digital Age has a current liabilities to total assets ratio of 45%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

In the end, Brimag Digital Age has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 159% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a final note, we found 3 warning signs for Brimag Digital Age (1 can't be ignored) you should be aware of.

While Brimag Digital Age 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.