We Think Ralco Agencies (TLV:RLCO) Might Have The DNA Of A Multi-Bagger

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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 Ralco Agencies (TLV:RLCO) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What is it?

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 Ralco Agencies is:

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

0.47 = ₪39m ÷ (₪138m - ₪54m) (Based on the trailing twelve months to December 2020).

Thus, Ralco Agencies has an ROCE of 47%. That's a fantastic return and not only that, it outpaces the average of 5.1% earned by companies in a similar industry.

View our latest analysis for Ralco Agencies

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

What The Trend Of ROCE Can Tell Us

Ralco Agencies is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 47%. The amount of capital employed has increased too, by 39%. So we're very much inspired by what we're seeing at Ralco Agencies thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 39%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Ralco Agencies has. And a remarkable 157% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

Ralco Agencies 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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