Tadiran Group's (TLV:TDRN) Returns On Capital Not Reflecting Well On The Business

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Tadiran Group (TLV:TDRN) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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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. Analysts use this formula to calculate it for Tadiran Group:

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

0.073 = ₪72m ÷ (₪1.7b - ₪743m) (Based on the trailing twelve months to June 2025).

Therefore, Tadiran Group has an ROCE of 7.3%. On its own, that's a low figure but it's around the 6.4% average generated by the Retail Distributors industry.

Check out our latest analysis for Tadiran Group

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 Tadiran Group's past further, check out this free graph covering Tadiran Group's past earnings, revenue and cash flow.

What Can We Tell From Tadiran Group's ROCE Trend?

On the surface, the trend of ROCE at Tadiran Group doesn't inspire confidence. Over the last five years, returns on capital have decreased to 7.3% from 21% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

On a side note, Tadiran Group's current liabilities are still rather high at 43% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

To conclude, we've found that Tadiran Group is reinvesting in the business, but returns have been falling. Since the stock has declined 18% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Tadiran Group has the makings of a multi-bagger.

One more thing: We've identified 3 warning signs with Tadiran Group (at least 2 which are significant) , and understanding these would certainly be useful.

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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.