The Returns On Capital At Fridenson Logistic Services (TLV:FRDN) Don't Inspire Confidence

What underlying fundamental trends can indicate that a company might be in decline? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. On that note, looking into Fridenson Logistic Services (TLV:FRDN), we weren't too upbeat about how things were going.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.074 = ₪15m ÷ (₪344m - ₪145m) (Based on the trailing twelve months to September 2023).

Thus, Fridenson Logistic Services has an ROCE of 7.4%. On its own, that's a low figure but it's around the 7.6% average generated by the Logistics industry.

See 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 past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Fridenson Logistic Services' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 11% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Fridenson Logistic Services becoming one if things continue as they have.

On a separate but related note, it's important to know that Fridenson Logistic Services has a current liabilities to total assets ratio of 42%, 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, it's unfortunate that Fridenson Logistic Services is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 10% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

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

While Fridenson Logistic Services may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.