What Can The Trends At Inter Gamma Investment (TLV:INTR) Tell Us About Their Returns?

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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Inter Gamma Investment (TLV:INTR) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Inter Gamma Investment:

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

0.12 = ₪6.1m ÷ (₪62m - ₪12m) (Based on the trailing twelve months to June 2020).

So, Inter Gamma Investment has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.

Check out 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'd like to look at how Inter Gamma Investment has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Inter Gamma Investment's ROCE Trend?

We're pretty happy with how the ROCE has been trending at Inter Gamma Investment. The data shows that returns on capital have increased by 41% over the trailing five years. The company is now earning ₪0.1 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 91% less capital than it was five years ago. Inter Gamma Investment may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 20%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On Inter Gamma Investment's ROCE

In a nutshell, we're pleased to see that Inter Gamma Investment has been able to generate higher returns from less capital. And a remarkable 113% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 3 warning signs for Inter Gamma Investment that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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