Under The Bonnet, Synel M.L.L Payway's (TLV:SNEL) Returns Look Impressive

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Synel M.L.L Payway (TLV:SNEL) we really liked what we saw.

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 Synel M.L.L Payway:

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

0.21 = ₪18m ÷ (₪116m - ₪32m) (Based on the trailing twelve months to March 2024).

So, Synel M.L.L Payway has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Software industry average of 11%.

View our latest analysis for Synel M.L.L Payway

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Synel M.L.L Payway.

How Are Returns Trending?

We're pretty happy with how the ROCE has been trending at Synel M.L.L Payway. We found that the returns on capital employed over the last five years have risen by 242%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Synel M.L.L Payway appears to been achieving more with less, since the business is using 88% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 28% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Bottom Line On Synel M.L.L Payway's ROCE

In summary, it's great to see that Synel M.L.L Payway has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has returned a staggering 283% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 3 warning signs with Synel M.L.L Payway (at least 1 which is concerning) , and understanding these would certainly be useful.

Synel M.L.L Payway is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.