Investors encountered slowing return on capital at Bezeq The Israel Telecommunication (TLV: BEZQ)


What are the first trends to look for to identify a title that could multiply over the long term? A common approach is to try to find a business with Return on capital employed (ROCE) which increases, in connection with growth amount capital employed. Ultimately, this demonstrates that this is a company that is reinvesting its profits at increasing rates of return. In light of this, when we looked at Bezeq Telecommunications from Israel (TLV: BEZQ) and its ROCE trend, we weren’t exactly thrilled.

Return on capital employed (ROCE): what is it?

If you’ve never worked with ROCE before, it measures the “return” (profit before tax) that a business generates on capital employed in its business. Analysts use this formula to calculate it for Bezeq The Israel Telecommunication:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.17 = 1.8b ÷ (₪ 14b – ₪ 3.3b) (Based on the last twelve months up to June 2021).

Therefore, Bezeq The Israel Telecommunication has a ROCE of 17%. In absolute terms, this is a satisfactory performance, but compared to the telecommunications industry average of 9.9%, it is much better.

Check out our latest review for Bezeq The Israel Telecommunication

TASE: BEZQ Review of the capital employed on October 26, 2021

Above you can see how Bezeq The Israel Telecommunication’s current ROCE compares to its previous returns on capital, but there is little you can say about the past. If you’d like to see what analysts are forecasting for the future, you should check out our free report for Bezeq The Israel Telecommunication.

What the ROCE trend can tell us

There hasn’t been much to report for Bezeq The Israel Telecommunication’s returns and level of capital employed, as both measures have remained stable over the past five years. This tells us that the company is not reinvesting in itself, so it is plausible that it has passed the growth phase. So unless we see a substantial change at Bezeq The Israel Telecommunication in terms of ROCE and additional investments, we won’t be holding our breath that this is a multi-bagger. With fewer investment opportunities, it makes sense that Bezeq The Israel Telecommunication paid 55% of its profits to its shareholders. Since the company does not reinvest in itself, it makes sense to distribute a portion of the profits among the shareholders.

The key to take away

In a nutshell, Bezeq The Israel Telecommunication has walked painfully with the same returns of the same amount of capital over the past five years. Given that the stock has lost 33% in the past five years, investors may not be overly optimistic that this trend will improve. Therefore, based on the analysis done in this article, we don’t think Bezeq The Israel Telecommunication has the makings of a multi-bagger.

Like most businesses, Bezeq The Israel Telecommunication comes with certain risks, and we have found 1 warning sign that you need to be aware of.

While Bezeq The Israel Telecommunication does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. Check it out free list here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

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