Stock Analysis

The Returns At ETGA Group (TLV:ETGA) Aren't Growing

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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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 ETGA Group (TLV:ETGA) 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)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on ETGA Group is:

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

0.14 = ₪35m ÷ (₪488m - ₪231m) (Based on the trailing twelve months to September 2023).

So, ETGA Group has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Logistics industry average of 7.4% it's much better.

See our latest analysis for ETGA Group

TASE:ETGA Return on Capital Employed May 23rd 2024

Historical performance is a great place to start when researching a stock so above you can see the gauge for ETGA Group's ROCE against it's prior returns. If you'd like to look at how ETGA Group has performed in the past in other metrics, you can view this free graph of ETGA Group's past earnings, revenue and cash flow.

What Can We Tell From ETGA Group's ROCE Trend?

There hasn't been much to report for ETGA Group's returns and its level of capital employed because both metrics have been steady for the past two years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect ETGA Group to be a multi-bagger going forward.

On a separate but related note, it's important to know that ETGA Group has a current liabilities to total assets ratio of 47%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

In summary, ETGA Group isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And in the last year, the stock has given away 30% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think ETGA Group has the makings of a multi-bagger.

If you want to know some of the risks facing ETGA Group we've found 3 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

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.

Valuation is complex, but we're helping make it simple.

Find out whether ETGA Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.