Retailors (TLV:RTLS) Might Be Having Difficulty Using Its Capital Effectively

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Retailors (TLV:RTLS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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 Retailors is:

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

0.081 = ₪186m ÷ (₪3.1b - ₪846m) (Based on the trailing twelve months to March 2025).

Therefore, Retailors has an ROCE of 8.1%. On its own, that's a low figure but it's around the 9.5% average generated by the Specialty Retail industry.

View our latest analysis for Retailors

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

So How Is Retailors' ROCE Trending?

In terms of Retailors' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 8.1% from 14% five years ago. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Retailors. In light of this, the stock has only gained 7.4% over the last three years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Retailors (of which 2 shouldn't be ignored!) that you should know about.

While Retailors 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.