CI Systems (Israel) (TLV:CISY) Is Experiencing Growth In 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? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So on that note, CI Systems (Israel) (TLV:CISY) looks quite promising in regards to its trends of return on capital.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on CI Systems (Israel) is:

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

0.12 = US$3.4m ÷ (US$40m - US$11m) (Based on the trailing twelve months to March 2024).

Therefore, CI Systems (Israel) has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 6.8% it's much better.

See our latest analysis for CI Systems (Israel)

Historical performance is a great place to start when researching a stock so above you can see the gauge for CI Systems (Israel)'s ROCE against it's prior returns. If you're interested in investigating CI Systems (Israel)'s past further, check out this free graph covering CI Systems (Israel)'s past earnings, revenue and cash flow.

So How Is CI Systems (Israel)'s ROCE Trending?

We like the trends that we're seeing from CI Systems (Israel). The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 69%. So we're very much inspired by what we're seeing at CI Systems (Israel) thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, CI Systems (Israel) has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 198% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, CI Systems (Israel) does come with some risks, and we've found 3 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com