Returns On Capital Are Showing Encouraging Signs At Bezeq The Israel Telecommunication (TLV:BEZQ)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So when we looked at Bezeq The Israel Telecommunication (TLV:BEZQ) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Bezeq The Israel Telecommunication:

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

0.17 = ₪1.8b ÷ (₪14b - ₪3.7b) (Based on the trailing twelve months to March 2023).

Therefore, Bezeq The Israel Telecommunication has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Telecom industry average of 10% it's much better.

Check out our latest analysis for Bezeq The Israel Telecommunication

In the above chart we have measured Bezeq The Israel Telecommunication's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Bezeq The Israel Telecommunication here for free.

SWOT Analysis for Bezeq The Israel Telecommunication

What The Trend Of ROCE Can Tell Us

Bezeq The Israel Telecommunication has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 25%. The company is now earning ₪0.2 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 28% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Key Takeaway

From what we've seen above, Bezeq The Israel Telecommunication has managed to increase it's returns on capital all the while reducing it's capital base. Considering the stock has delivered 17% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

On a final note, we've found 1 warning sign for Bezeq The Israel Telecommunication 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. 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.