Returns On Capital At Sunflower Sustainable Investments (TLV:SNFL) Paint A Concerning Picture

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Although, when we looked at Sunflower Sustainable Investments (TLV:SNFL), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Sunflower Sustainable Investments is:

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

0.055 = ₪42m ÷ (₪854m - ₪98m) (Based on the trailing twelve months to March 2024).

Thus, Sunflower Sustainable Investments has an ROCE of 5.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.5%.

Check out our latest analysis for Sunflower Sustainable Investments

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

What The Trend Of ROCE Can Tell Us

In terms of Sunflower Sustainable Investments' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 5.5% from 7.7% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Sunflower Sustainable Investments' ROCE

While returns have fallen for Sunflower Sustainable Investments in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 13% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

If you want to know some of the risks facing Sunflower Sustainable Investments we've found 4 warning signs (1 is significant!) 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.

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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.