Investors Shouldn't Overlook Delta Israel Brands' (TLV:DLTI) Impressive Returns On Capital

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 Delta Israel Brands' (TLV:DLTI) look very promising so lets take a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Delta Israel Brands:

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

0.23 = ₪161m ÷ (₪949m - ₪255m) (Based on the trailing twelve months to June 2022).

Thus, Delta Israel Brands has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 10%.

Check out the opportunities and risks within the IL Specialty Retail industry.

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

How Are Returns Trending?

We like the trends that we're seeing from Delta Israel Brands. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 23%. Basically the business is earning more per dollar of capital invested and in addition to that, 116% 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.

The Bottom Line 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 given the stock has remained rather flat over the last year, there might be an opportunity here if other metrics are strong. With that in mind, we believe the promising trends warrant this stock for further investigation.

Delta Israel Brands does have some risks though, and we've spotted 1 warning sign for Delta Israel Brands that you might be interested in.

Delta Israel Brands 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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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.