We Like These Underlying Return On Capital Trends At Lordos United Plastics (CSE:LPL)

April 18, 2021
  •  Updated
August 17, 2022
CSE:LPL
Source: Shutterstock

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Lordos United Plastics (CSE:LPL) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

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 Lordos United Plastics is:

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

0.02 = €515k ÷ (€38m - €13m) (Based on the trailing twelve months to June 2020).

Therefore, Lordos United Plastics has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 9.3%.

View our latest analysis for Lordos United Plastics

roce
CSE:LPL Return on Capital Employed April 19th 2021

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Lordos United Plastics has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Lordos United Plastics' ROCE Trending?

Shareholders will be relieved that Lordos United Plastics has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 2.0%, which is always encouraging. While returns have increased, the amount of capital employed by Lordos United Plastics has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In Conclusion...

As discussed above, Lordos United Plastics appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Considering the stock has delivered 13% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Lordos United Plastics (of which 1 is potentially serious!) that you should know about.

While Lordos United Plastics may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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