Why The 20% Return On Capital At Lotus Bakeries (EBR:LOTB) Should Have Your Attention

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, the ROCE of Lotus Bakeries (EBR:LOTB) looks great, so lets see what the trend can tell us.

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Return On Capital Employed (ROCE): What Is It?

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 Lotus Bakeries is:

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

0.20 = €207m ÷ (€1.4b - €339m) (Based on the trailing twelve months to December 2024).

So, Lotus Bakeries has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Food industry average of 6.4%.

See our latest analysis for Lotus Bakeries

Above you can see how the current ROCE for Lotus Bakeries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Lotus Bakeries .

How Are Returns Trending?

The trends we've noticed at Lotus Bakeries are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 20%. The amount of capital employed has increased too, by 64%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

All in all, it's terrific to see that Lotus Bakeries is reaping the rewards from prior investments and is growing its capital base. And a remarkable 200% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Lotus Bakeries looks impressive, no company is worth an infinite price. The intrinsic value infographic for LOTB helps visualize whether it is currently trading for a fair price.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.