Here’s What’s Happening With Returns At LPKF Laser & Electronics (ETR:LPK)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at LPKF Laser & Electronics (ETR:LPK) so let's look a bit deeper.

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 LPKF Laser & Electronics is:

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

0.11 = €11m ÷ (€118m - €17m) (Based on the trailing twelve months to September 2020).

Thus, LPKF Laser & Electronics has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 8.7% it's much better.

View our latest analysis for LPKF Laser & Electronics

Above you can see how the current ROCE for LPKF Laser & Electronics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering LPKF Laser & Electronics here for free.

How Are Returns Trending?

Shareholders will be relieved that LPKF Laser & Electronics 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 11%, which is always encouraging. While returns have increased, the amount of capital employed by LPKF Laser & Electronics has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

The Key Takeaway

To bring it all together, LPKF Laser & Electronics has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 168% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching LPKF Laser & Electronics, you might be interested to know about the 2 warning signs that our analysis has discovered.

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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