Returns On Capital At Suny Cellular Communication (TLV:SNCM) Paint A Concerning Picture

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Suny Cellular Communication (TLV:SNCM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Suny Cellular Communication is:

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

0.17 = ₪75m ÷ (₪510m - ₪82m) (Based on the trailing twelve months to March 2022).

So, Suny Cellular Communication has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 12% it's much better.

View our latest analysis for Suny Cellular Communication

Historical performance is a great place to start when researching a stock so above you can see the gauge for Suny Cellular Communication's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Suny Cellular Communication, check out these free graphs here.

What Does the ROCE Trend For Suny Cellular Communication Tell Us?

In terms of Suny Cellular Communication's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 34% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Suny Cellular Communication has done well to pay down its current liabilities to 16% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by Suny Cellular Communication's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 21% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Suny Cellular Communication has the makings of a multi-bagger.

One final note, you should learn about the 3 warning signs we've spotted with Suny Cellular Communication (including 1 which doesn't sit too well with us) .

While Suny Cellular Communication 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.