Did you know that there are financial metrics that can provide clues of a potential multi-bagger? A common approach is to try to find a company with Return on capital employed (ROCE) which is increasing, in line with growth amount capital employed. This shows us that it is a compounding machine, capable of continuously reinvesting its profits back into the business and generating higher returns. With this in mind, the ROCE of Hilan (TLV:HLAN) looks attractive right now, so let’s see what the yield trend can tell us.
Return on capital employed (ROCE): what is it?
If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. The formula for this calculation on Hilan is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.28 = ₪200m ÷ (₪1.3b – ₪632m) (Based on the last twelve months to September 2021).
So, Hilan has a ROCE of 28%. This is a fantastic return and not only that, it exceeds the 7.7% average earned by companies in a similar industry.
Check out our latest analysis for Hilan
Historical performance is a great starting point when researching a stock. So above you can see the gauge of Hilan’s ROCE compared to its past returns. If you want to dive into Hilan’s earnings, revenue, and cash flow history, check out these free graphics here.
What the ROCE trend can tell us
It’s hard not to be impressed with Hilan’s returns on capital. Over the past five years, ROCE has remained relatively stable at around 28% and the company has deployed 76% more capital into its operations. Now considering that the ROCE is an attractive 28%, this combination is actually quite attractive because it means the company can consistently put money to work and generate those high returns. If Hilan can continue like this, we would be very optimistic about her future.
On a separate but related note, it’s important to know that Hilan has a current liabilities to total assets ratio of 47%, which we would consider quite high. This may entail certain risks, since the company is essentially dependent on its suppliers or other types of short-term creditors. Ideally, we would like this to decrease, as this would mean fewer risky bonds.
The Key Takeaway
Hilan has demonstrated competence in generating high returns on increasing amounts of capital employed, which we are delighted with. And long-term investors would be delighted with the 302% return they’ve received over the past five years. So while investors seem to recognize these promising trends, we still think the stock warrants further research.
On the other side of ROCE, we have to consider valuation. That’s why we have a FREE intrinsic value estimation on our platform definitely worth checking out.
Hilan is not the only stock to generate high returns. If you want to see more, check out our free list of companies with high returns on equity with strong fundamentals.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.