Knafaim Holdings (TLV:KNFM) Shareholders Will Want The ROCE Trajectory To Continue

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Knafaim Holdings (TLV:KNFM) 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. To calculate this metric for Knafaim Holdings, this is the formula:

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

0.07 = US$10m ÷ (US$162m - US$20m) (Based on the trailing twelve months to June 2024).

So, Knafaim Holdings has an ROCE of 7.0%. In absolute terms, that's a low return but it's around the Airlines industry average of 8.3%.

Check out our latest analysis for Knafaim Holdings

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 , check out these free graphs detailing revenue and cash flow performance of Knafaim Holdings.

What Can We Tell From Knafaim Holdings' ROCE Trend?

Knafaim Holdings has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 508%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 94% 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.

One more thing to note, Knafaim Holdings has decreased current liabilities to 12% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Knafaim Holdings has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Knafaim Holdings' ROCE

In summary, it's great to see that Knafaim Holdings has been able to turn things around and earn higher returns on lower amounts of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 0.3% to shareholders. So with that in mind, we think the stock deserves further research.

Knafaim Holdings does come with some risks though, we found 6 warning signs in our investment analysis, and 3 of those are concerning...

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.