Returns On Capital At Top Ramdor Systems & Computers (1990) (TLV:TOPS) Have Stalled

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. That's why when we briefly looked at Top Ramdor Systems & Computers (1990)'s (TLV:TOPS) ROCE trend, we were pretty happy with what we saw.

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. To calculate this metric for Top Ramdor Systems & Computers (1990), this is the formula:

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

0.15 = ₪20m ÷ (₪263m - ₪124m) (Based on the trailing twelve months to December 2022).

Therefore, 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 9.4% generated by the Software industry.

View 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 Can We Tell From Top Ramdor Systems & Computers (1990)'s ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 15% for the last five years, and the capital employed within the business has risen 232% in that time. 15% is a pretty standard return, and it provides some comfort knowing that Top Ramdor Systems & Computers (1990) has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Another thing to note, Top Ramdor Systems & Computers (1990) has a high ratio of current liabilities to total assets of 47%. 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.

What We Can Learn From Top Ramdor Systems & Computers (1990)'s ROCE

In the end, Top Ramdor Systems & Computers (1990) has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 259% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing, we've spotted 2 warning signs facing Top Ramdor Systems & Computers (1990) that you might find interesting.

While Top Ramdor Systems & Computers (1990) 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.