There Are Reasons To Feel Uneasy About G. Willi-Food International's (NASDAQ:WILC) Returns On Capital
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at G. Willi-Food International (NASDAQ:WILC) and its ROCE trend, we weren't exactly thrilled.
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 G. Willi-Food International is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.033 = ₪19m ÷ (₪616m - ₪46m) (Based on the trailing twelve months to March 2024).
Thus, G. Willi-Food International has an ROCE of 3.3%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 10%.
Check out our latest analysis for G. Willi-Food International
Historical performance is a great place to start when researching a stock so above you can see the gauge for G. Willi-Food International's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of G. Willi-Food International.
What Does the ROCE Trend For G. Willi-Food International Tell Us?
When we looked at the ROCE trend at G. Willi-Food International, we didn't gain much confidence. Around five years ago the returns on capital were 8.9%, but since then they've fallen to 3.3%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.
Our Take On G. Willi-Food International's ROCE
In summary, G. Willi-Food International is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly, the stock has only gained 15% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
On a final note, we found 2 warning signs for G. Willi-Food International (1 is a bit concerning) you should be aware of.
While G. Willi-Food International isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
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