The Return Trends At Fridenson Logistic Services (TLV:FRDN) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Fridenson Logistic Services (TLV:FRDN) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Fridenson Logistic Services is:

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

0.052 = ₪10m ÷ (₪317m - ₪121m) (Based on the trailing twelve months to June 2024).

Thus, Fridenson Logistic Services has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Logistics industry average of 7.2%.

View our latest analysis for Fridenson Logistic Services

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

What The Trend Of ROCE Can Tell Us

Fridenson Logistic Services has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 23%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 36% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line On Fridenson Logistic Services' ROCE

From what we've seen above, Fridenson Logistic Services has managed to increase it's returns on capital all the while reducing it's capital base. Astute investors may have an opportunity here because the stock has declined 21% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing: We've identified 4 warning signs with Fridenson Logistic Services (at least 1 which is a bit unpleasant) , and understanding them would certainly be useful.

While Fridenson Logistic Services 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.