What Do The Returns On Capital At Synel M.L.L Payway (TLV:SNEL) Tell Us?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Although, when we looked at Synel M.L.L Payway (TLV:SNEL), it didn't seem to tick all of these boxes.

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. 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)

0.063 = ₪47m ÷ (₪846m - ₪100m) (Based on the trailing twelve months to September 2020).

Therefore, Synel M.L.L Payway has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Software industry average of 13%.

See 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're interested in investigating Synel M.L.L Payway's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at Synel M.L.L Payway. The company has employed 63% more capital in the last five years, and the returns on that capital have remained stable at 6.3%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Synel M.L.L Payway's ROCE

As we've seen above, Synel M.L.L Payway's returns on capital haven't increased but it is reinvesting in the business. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 134% gain to shareholders who have held 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 Synel M.L.L Payway, we've spotted 4 warning signs, and 1 of them is potentially serious.

While Synel M.L.L Payway 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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