Here's What To Make Of Top Ramdor Systems & Computers (1990)'s (TLV:TOPS) 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Top Ramdor Systems & Computers (1990) (TLV:TOPS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Top Ramdor Systems & Computers (1990):

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

0.15 = ₪10m ÷ (₪126m - ₪55m) (Based on the trailing twelve months to September 2020).

Thus, Top Ramdor Systems & Computers (1990) has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 11% generated by the Software industry.

Check out our latest analysis for Top Ramdor Systems & Computers (1990)

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 Top Ramdor Systems & Computers (1990)'s past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Top Ramdor Systems & Computers (1990) doesn't inspire confidence. To be more specific, ROCE has fallen from 22% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Top Ramdor Systems & Computers (1990)'s current liabilities are still rather high at 44% of total assets. 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 Bottom Line On Top Ramdor Systems & Computers (1990)'s ROCE

In summary, Top Ramdor Systems & Computers (1990) is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 497% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a separate note, we've found 4 warning signs for Top Ramdor Systems & Computers (1990) you'll probably want to know about.

While Top Ramdor Systems & Computers (1990) may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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