Investors Could Be Concerned With Maman-Cargo Terminals & Handling's (TLV:MMAN) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Although, when we looked at Maman-Cargo Terminals & Handling (TLV:MMAN), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

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 Maman-Cargo Terminals & Handling is:

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

0.032 = ₪45m ÷ (₪1.8b - ₪423m) (Based on the trailing twelve months to March 2021).

So, Maman-Cargo Terminals & Handling has an ROCE of 3.2%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 5.5%.

View our latest analysis for Maman-Cargo Terminals & Handling

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

The Trend Of ROCE

On the surface, the trend of ROCE at Maman-Cargo Terminals & Handling doesn't inspire confidence. Over the last five years, returns on capital have decreased to 3.2% from 6.7% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On Maman-Cargo Terminals & Handling's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Maman-Cargo Terminals & Handling have fallen, meanwhile the business is employing more capital than it was five years ago. Investors must expect better things on the horizon though because the stock has risen 20% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

Maman-Cargo Terminals & Handling does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those shouldn't be ignored...

While Maman-Cargo Terminals & Handling 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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