Returns At Inter Gamma Investment (TLV:INTR) Are On The Way Up

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. So on that note, Inter Gamma Investment (TLV:INTR) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Inter Gamma Investment, this is the formula:

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

0.11 = ₪4.7m ÷ (₪55m - ₪10m) (Based on the trailing twelve months to December 2021).

Therefore, Inter Gamma Investment has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electronic industry average of 12%.

See our latest analysis for Inter Gamma Investment

Historical performance is a great place to start when researching a stock so above you can see the gauge for Inter Gamma Investment's ROCE against it's prior returns. If you're interested in investigating Inter Gamma Investment's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Inter Gamma Investment's ROCE Trending?

Inter Gamma Investment has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 2,595%. The company is now earning ₪0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 94% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

On a related note, the company's ratio of current liabilities to total assets has decreased to 19%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

From what we've seen above, Inter Gamma Investment has managed to increase it's returns on capital all the while reducing it's capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Inter Gamma Investment, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Inter Gamma Investment 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.