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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. 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. Analysts use this formula to calculate it for G. Willi-Food International:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.074 = ₪45m ÷ (₪663m - ₪63m) (Based on the trailing twelve months to September 2024).
Thus, G. Willi-Food International has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 11%.
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're interested in investigating G. Willi-Food International's past further, check out this free graph covering G. Willi-Food International's past earnings, revenue and cash flow.
So How Is G. Willi-Food International's ROCE Trending?
When we looked at the ROCE trend at G. Willi-Food International, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 7.4% from 9.4% five years ago. However it looks like G. Willi-Food International might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Bottom Line On G. Willi-Food International's ROCE
Bringing it all together, while we're somewhat encouraged by G. Willi-Food International's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 79% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.