Finding a business that has the potential to grow significantly isn’t easy, but it is possible if we look at a few key financial metrics. First, we’ll want to see proof to return to on capital employed (ROCE) which is increasing, and on the other hand, a base capital employed. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a blending machine. So when we looked Willy Food Investments (TLV:WLFD) and its ROCE trend, we really liked what we saw.
Understanding return on capital employed (ROCE)
For those unaware, ROCE is a measure of a company’s annual pre-tax profit (yield), relative to the capital employed in the business. To calculate this metric for Willy-Food Investments, here is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.079 = ₪48m ÷ (₪661m – ₪50m) (Based on the last twelve months to December 2021).
So, Willy-Food Investments posted a ROCE of 7.9%. Ultimately, that’s a poor performer, and it’s below the retail industry average of 14%.
Check out our latest analysis for Willy-Food Investments
Historical performance is a great starting point when researching a stock. So above you can see the ROCE gauge of Willy-Food Investments compared to its past returns. If you want to investigate more about the past of Willy-Food Investments, check out this free chart of past profits, revenue and cash flow.
What is the return trend?
Although in absolute terms this is not a high ROCE, it is promising to see it moving in the right direction. Over the past five years, return on capital employed has increased substantially to 7.9%. The company is actually making more money per dollar of capital used, and it’s worth noting that the amount of capital has also increased by 49%. So we’re very inspired by what we’re seeing at Willy-Food Investments with its ability to reinvest capital profitably.
The essentials on the ROCE of Willy-Food Investments
A business that increases its returns on capital and can constantly reinvest in itself is a highly sought after trait, and that is what Willy-Food Investments possesses. And a remarkable total return of 194% over the past five years tells us that investors expect more good things to come. That being said, we still think the promising fundamentals mean the company merits further due diligence.
If you want to know more about Willy-Food Investments, we have spotted 2 warning signs, and 1 of them is a little disturbing.
Although Willy-Food Investments does not generate the highest return, check out this free list of companies that achieve high returns on equity with strong balance sheets.
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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.