Stock Analysis

Under The Bonnet, Telsys' (TLV:TLSY) Returns Look Impressive

TASE:TLSY
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What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Telsys' (TLV:TLSY) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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 Telsys:

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

0.23 = ₪69m ÷ (₪384m - ₪79m) (Based on the trailing twelve months to June 2020).

Thus, Telsys has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Electronic industry average of 12%.

Check out our latest analysis for Telsys

roce
TASE:TLSY Return on Capital Employed December 2nd 2020

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 Telsys' past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Investors would be pleased with what's happening at Telsys. Over the last five years, returns on capital employed have risen substantially to 23%. The amount of capital employed has increased too, by 233%. So we're very much inspired by what we're seeing at Telsys thanks to its ability to profitably reinvest capital.

Our Take On Telsys' ROCE

To sum it up, Telsys has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. 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.

On a final note, we've found 2 warning signs for Telsys that we think you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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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