Investors Should Be Encouraged By Luzhou LaojiaoLtd's (SZSE:000568) Returns On Capital
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. So when we looked at the ROCE trend of Luzhou LaojiaoLtd (SZSE:000568) we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Luzhou LaojiaoLtd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.34 = CN¥19b ÷ (CN¥66b - CN¥11b) (Based on the trailing twelve months to September 2024).
So, Luzhou LaojiaoLtd has an ROCE of 34%. That's a fantastic return and not only that, it outpaces the average of 18% earned by companies in a similar industry.
View our latest analysis for Luzhou LaojiaoLtd
Above you can see how the current ROCE for Luzhou LaojiaoLtd compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Luzhou LaojiaoLtd .
What The Trend Of ROCE Can Tell Us
Investors would be pleased with what's happening at Luzhou LaojiaoLtd. Over the last five years, returns on capital employed have risen substantially to 34%. Basically the business is earning more per dollar of capital invested and in addition to that, 161% more capital is being employed now too. So we're very much inspired by what we're seeing at Luzhou LaojiaoLtd thanks to its ability to profitably reinvest capital.
What We Can Learn From Luzhou LaojiaoLtd's ROCE
All in all, it's terrific to see that Luzhou LaojiaoLtd is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 65% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.
On a final note, we've found 1 warning sign for Luzhou LaojiaoLtd that we think you should be aware of.
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.
About SZSE:000568
Undervalued with excellent balance sheet and pays a dividend.
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