There's Been No Shortage Of Growth Recently For Cellcom Israel's (TLV:CEL) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Cellcom Israel (TLV:CEL) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Cellcom Israel:

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

0.078 = ₪382m ÷ (₪6.9b - ₪1.9b) (Based on the trailing twelve months to June 2023).

So, Cellcom Israel has an ROCE of 7.8%. Ultimately, that's a low return and it under-performs the Wireless Telecom industry average of 10.0%.

View our latest analysis for Cellcom Israel

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 want to delve into the historical earnings, revenue and cash flow of Cellcom Israel, check out these free graphs here.

The Trend Of ROCE

Cellcom Israel has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 80% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Cellcom Israel's ROCE

To sum it up, Cellcom Israel is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 57% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 2 warning signs for Cellcom Israel you'll probably want to know about.

While Cellcom Israel isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.