Malam - Team (TLV:MLTM) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Malam - Team (TLV:MLTM), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Malam - Team:

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

0.12 = ₪138m ÷ (₪2.2b - ₪983m) (Based on the trailing twelve months to September 2023).

Thus, Malam - Team has an ROCE of 12%. In absolute terms, that's a pretty standard return but compared to the IT industry average it falls behind.

View our latest analysis for Malam - Team

Historical performance is a great place to start when researching a stock so above you can see the gauge for Malam - Team's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Malam - Team, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Malam - Team doesn't inspire confidence. Over the last five years, returns on capital have decreased to 12% from 15% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

On a separate but related note, it's important to know that Malam - Team has a current liabilities to total assets ratio of 45%, 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.

Our Take On Malam - Team's ROCE

To conclude, we've found that Malam - Team is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 75% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

If you'd like to know more about Malam - Team, we've spotted 4 warning signs, and 2 of them are potentially serious.

While Malam - Team 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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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.