Top Ramdor Systems & Computers (1990) (TLV:TOPS) Is Looking To Continue Growing Its 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? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Top Ramdor Systems & Computers (1990) (TLV:TOPS) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)

0.18 = ₪24m ÷ (₪288m - ₪154m) (Based on the trailing twelve months to September 2024).

So, Top Ramdor Systems & Computers (1990) has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 17% generated by the Software industry.

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

Historical performance is a great place to start when researching a stock so above you can see the gauge for Top Ramdor Systems & Computers (1990)'s ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Top Ramdor Systems & Computers (1990).

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

The trends we've noticed at Top Ramdor Systems & Computers (1990) are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 110% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a side note, Top Ramdor Systems & Computers (1990)'s current liabilities are still rather high at 54% 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

All in all, it's terrific to see that Top Ramdor Systems & Computers (1990) is reaping the rewards from prior investments and is growing its capital base. And a remarkable 275% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Top Ramdor Systems & Computers (1990) can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 3 warning signs facing Top Ramdor Systems & Computers (1990) that you might find interesting.

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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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.