Delta Israel Brands (TLV:DLTI) Is Achieving High Returns On Its Capital

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Delta Israel Brands (TLV:DLTI) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Delta Israel Brands is:

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

0.21 = ₪148m ÷ (₪990m - ₪289m) (Based on the trailing twelve months to September 2022).

Thus, Delta Israel Brands has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 10%.

Check out our latest analysis for Delta Israel Brands

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 Delta Israel Brands' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Delta Israel Brands Tell Us?

We like the trends that we're seeing from Delta Israel Brands. The data shows that returns on capital have increased substantially over the last three years to 21%. Basically the business is earning more per dollar of capital invested and in addition to that, 100% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Delta Israel Brands' ROCE

To sum it up, Delta Israel Brands has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 44% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Delta Israel Brands does have some risks though, and we've spotted 2 warning signs for Delta Israel Brands that you might be interested in.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.