Bezeq The Israel Telecommunication's (TLV:BEZQ) Returns Have Hit A Wall

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Bezeq The Israel Telecommunication (TLV:BEZQ) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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 Bezeq The Israel Telecommunication, this is the formula:

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

0.16 = ₪1.8b ÷ (₪15b - ₪3.8b) (Based on the trailing twelve months to June 2024).

Thus, Bezeq The Israel Telecommunication has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 12% generated by the Telecom industry.

View our latest analysis for Bezeq The Israel Telecommunication

Above you can see how the current ROCE for Bezeq The Israel Telecommunication compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Bezeq The Israel Telecommunication for free.

How Are Returns Trending?

Things have been pretty stable at Bezeq The Israel Telecommunication, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Bezeq The Israel Telecommunication doesn't end up being a multi-bagger in a few years time. That being the case, it makes sense that Bezeq The Israel Telecommunication has been paying out 78% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.

In Conclusion...

In a nutshell, Bezeq The Israel Telecommunication has been trudging along with the same returns from the same amount of capital over the last five years. Yet to long term shareholders the stock has gifted them an incredible 102% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Bezeq The Israel Telecommunication does have some risks though, and we've spotted 2 warning signs for Bezeq The Israel Telecommunication that you might be interested in.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.