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What trends should we look for it we want to identify stocks that can 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating E & M Computing (TLV:EMCO), we don't think it's current trends fit the mold of a multi-bagger.
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. The formula for this calculation on E & M Computing is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = ₪65m ÷ (₪900m - ₪557m) (Based on the trailing twelve months to March 2025).
So, E & M Computing has an ROCE of 19%. In absolute terms, that's a pretty normal return, and it's somewhat close to the IT industry average of 18%.
Check out our latest analysis for E & M Computing
Historical performance is a great place to start when researching a stock so above you can see the gauge for E & M Computing's ROCE against it's prior returns. If you're interested in investigating E & M Computing's past further, check out this free graph covering E & M Computing's past earnings, revenue and cash flow.
So How Is E & M Computing's ROCE Trending?
There hasn't been much to report for E & M Computing's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at E & M Computing in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.
On a separate but related note, it's important to know that E & M Computing has a current liabilities to total assets ratio of 62%, which we'd consider pretty high. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
The Key Takeaway
In a nutshell, E & M Computing has been trudging along with the same returns from the same amount of capital over the last five years. Although the market must be expecting these trends to improve because the stock has gained 48% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
If you want to know some of the risks facing E & M Computing we've found 3 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.
While E & M Computing isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About TASE:PEAX
Peax Solutions
Provides technological solutions in Israel.
Slight risk with mediocre balance sheet.
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