Delek Automotive Systems' (TLV:DLEA) Returns On Capital Not Reflecting Well On The Business

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Delek Automotive Systems (TLV:DLEA) and its ROCE trend, we weren't exactly thrilled.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Delek Automotive Systems, this is the formula:

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

0.086 = ₪543m ÷ (₪10b - ₪4.0b) (Based on the trailing twelve months to March 2025).

So, Delek Automotive Systems has an ROCE of 8.6%. Even though it's in line with the industry average of 9.5%, it's still a low return by itself.

View our latest analysis for Delek Automotive Systems

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're interested in investigating Delek Automotive Systems' past further, check out this free graph covering Delek Automotive Systems' past earnings, revenue and cash flow.

What Does the ROCE Trend For Delek Automotive Systems Tell Us?

On the surface, the trend of ROCE at Delek Automotive Systems doesn't inspire confidence. To be more specific, ROCE has fallen from 12% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Delek Automotive Systems' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Delek Automotive Systems. And the stock has done incredibly well with a 173% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Delek Automotive Systems (of which 3 are a bit unpleasant!) that you should know about.

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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.