Slowing Rates Of Return At Top Ramdor Systems & Computers (1990) (TLV:TOPS) Leave Little Room For Excitement

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 ran our eye over Top Ramdor Systems & Computers (1990)'s (TLV:TOPS) trend of ROCE, we liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Top Ramdor Systems & Computers (1990) is:

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

0.16 = ₪16m ÷ (₪174m - ₪76m) (Based on the trailing twelve months to September 2021).

Therefore, Top Ramdor Systems & Computers (1990) has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 9.3% generated by the Software industry.

See 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 Does the ROCE Trend For Top Ramdor Systems & Computers (1990) Tell Us?

While the returns on capital are good, they haven't moved much. The company has employed 219% more capital in the last five years, and the returns on that capital have remained stable at 16%. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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 44%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

The main thing to remember is that Top Ramdor Systems & Computers (1990) has proven its ability to continually reinvest at respectable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 375% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you'd like to know about the risks facing Top Ramdor Systems & Computers (1990), we've discovered 2 warning signs that you should be aware of.

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.