A Look Into Llorente & Cuenca's (BME:LLYC) Impressive Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, the ROCE of Llorente & Cuenca (BME:LLYC) looks attractive right now, so lets see what the trend of returns can tell us.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Llorente & Cuenca is:

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

0.20 = €13m ÷ (€85m - €21m) (Based on the trailing twelve months to June 2023).

Therefore, Llorente & Cuenca has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Media industry average of 9.3%.

View our latest analysis for Llorente & Cuenca

In the above chart we have measured Llorente & Cuenca's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Llorente & Cuenca .

So How Is Llorente & Cuenca's ROCE Trending?

We'd be pretty happy with returns on capital like Llorente & Cuenca. The company has consistently earned 20% for the last five years, and the capital employed within the business has risen 202% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Llorente & Cuenca can keep this up, we'd be very optimistic about its future.

The Bottom Line

In short, we'd argue Llorente & Cuenca has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Yet over the last three years the stock has declined 28%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

Like most companies, Llorente & Cuenca does come with some risks, and we've found 1 warning sign that 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.