Lexibook - Linguistic Electronic System Société anonyme (EPA:ALLEX) Shareholders Will Want The ROCE Trajectory To Continue

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. So on that note, Lexibook - Linguistic Electronic System Société anonyme (EPA:ALLEX) looks quite promising in regards to its trends of return on capital.

What is 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 Lexibook - Linguistic Electronic System Société anonyme is:

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

0.031 = €283k ÷ (€22m - €13m) (Based on the trailing twelve months to September 2020).

Therefore, Lexibook - Linguistic Electronic System Société anonyme has an ROCE of 3.1%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 9.8%.

See our latest analysis for Lexibook - Linguistic Electronic System Société anonyme

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're interested in investigating Lexibook - Linguistic Electronic System Société anonyme's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Lexibook - Linguistic Electronic System Société anonyme Tell Us?

Shareholders will be relieved that Lexibook - Linguistic Electronic System Société anonyme has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 3.1% on its capital. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. 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. Because in the end, a business can only get so efficient.

One more thing to note, Lexibook - Linguistic Electronic System Société anonyme has decreased current liabilities to 58% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Lexibook - Linguistic Electronic System Société anonyme has grown its returns without a reliance on increasing their current liabilities, which we're very happy with. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Bottom Line

To bring it all together, Lexibook - Linguistic Electronic System Société anonyme has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 60% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Lexibook - Linguistic Electronic System Société anonyme we've found 3 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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