The Trends At Lotus Bakeries (EBR:LOTB) That You Should Know About

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Lotus Bakeries (EBR:LOTB) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Lotus Bakeries, this is the formula:

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

0.16 = €107m ÷ (€848m - €164m) (Based on the trailing twelve months to June 2020).

So, Lotus Bakeries has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 8.3% it's much better.

View our latest analysis for Lotus Bakeries

In the above chart we have measured Lotus Bakeries' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Lotus Bakeries.

So How Is Lotus Bakeries' ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has employed 132% more capital in the last five years, and the returns on that capital have remained stable at 16%. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

In the end, Lotus Bakeries has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 139% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Lotus Bakeries does have some risks though, and we've spotted 1 warning sign for Lotus Bakeries that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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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