Returns Are Gaining Momentum At LleidaNetworks Serveis Telemàtics (BME:LLN)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, LleidaNetworks Serveis Telemàtics (BME:LLN) looks quite promising in regards to its trends of return on capital.

Understanding 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. To calculate this metric for LleidaNetworks Serveis Telemàtics, this is the formula:

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

0.15 = €1.4m ÷ (€13m - €3.9m) (Based on the trailing twelve months to December 2020).

So, LleidaNetworks Serveis Telemàtics has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Telecom industry.

Check out our latest analysis for LleidaNetworks Serveis Telemàtics

Above you can see how the current ROCE for LleidaNetworks Serveis Telemàtics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for LleidaNetworks Serveis Telemàtics.

What The Trend Of ROCE Can Tell Us

Shareholders will be relieved that LleidaNetworks Serveis Telemàtics 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 15%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. 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. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line On LleidaNetworks Serveis Telemàtics' ROCE

To bring it all together, LleidaNetworks Serveis Telemàtics has done well to increase the returns it's generating from its capital employed. And a remarkable 673% total return over the last five years tells us that investors are expecting more good things to come in the future. 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 2 warning signs for LleidaNetworks Serveis Telemàtics that we think you should be aware of.

While LleidaNetworks Serveis Telemàtics isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

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