Investors Met With Slowing Returns on Capital At learnd (ETR:LRND)

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at learnd (ETR:LRND), it didn't seem to tick all of these boxes.

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. The formula for this calculation on learnd is:

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

0.03 = UK£804k ÷ (UK£44m - UK£18m) (Based on the trailing twelve months to June 2024).

Thus, learnd has an ROCE of 3.0%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 7.8%.

See our latest analysis for learnd

Historical performance is a great place to start when researching a stock so above you can see the gauge for learnd's ROCE against it's prior returns. If you'd like to look at how learnd has performed in the past in other metrics, you can view this free graph of learnd's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of learnd's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 3.0% for the last three years, and the capital employed within the business has risen 2,246% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

One more thing to note, even though ROCE has remained relatively flat over the last three years, the reduction in current liabilities to 40% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line On learnd's ROCE

Long story short, while learnd has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has declined 35% over the last three years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for learnd (of which 2 shouldn't be ignored!) that you should know about.

While learnd 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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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.