If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Gilat Satellite Networks (NASDAQ:GILT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Gilat Satellite Networks:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.057 = US$18m ÷ (US$433m - US$119m) (Based on the trailing twelve months to September 2024).

Therefore, Gilat Satellite Networks has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Communications industry average of 9.7%.

See our latest analysis for Gilat Satellite Networks

In the above chart we have measured Gilat Satellite Networks' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Gilat Satellite Networks .

How Are Returns Trending?

On the surface, the trend of ROCE at Gilat Satellite Networks doesn't inspire confidence. Over the last five years, returns on capital have decreased to 5.7% from 9.8% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Gilat Satellite Networks' ROCE

While returns have fallen for Gilat Satellite Networks in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These growth trends haven't led to growth returns though, since the stock has fallen 13% over the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Gilat Satellite Networks could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for GILT on our platform quite valuable.

While Gilat Satellite Networks 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.