Lexibook - Linguistic Electronic System Société anonyme (EPA:ALLEX) Is Investing Its Capital With Increasing Efficiency

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. And in light of that, the trends we're seeing at Lexibook - Linguistic Electronic System Société anonyme's (EPA:ALLEX) look very promising so lets take a look.

Understanding 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 Lexibook - Linguistic Electronic System Société anonyme is:

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

0.25 = €4.3m ÷ (€30m - €13m) (Based on the trailing twelve months to March 2023).

Therefore, Lexibook - Linguistic Electronic System Société anonyme has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 18%.

Check out our latest analysis for Lexibook - Linguistic Electronic System Société anonyme

Historical performance is a great place to start when researching a stock so above you can see the gauge for Lexibook - Linguistic Electronic System Société anonyme's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Lexibook - Linguistic Electronic System Société anonyme, check out these free graphs here.

What Can We Tell From Lexibook - Linguistic Electronic System Société anonyme's ROCE Trend?

Investors would be pleased with what's happening at Lexibook - Linguistic Electronic System Société anonyme. Over the last five years, returns on capital employed have risen substantially to 25%. The amount of capital employed has increased too, by 183%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

One more thing to note, Lexibook - Linguistic Electronic System Société anonyme has decreased current liabilities to 43% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Lexibook - Linguistic Electronic System Société anonyme has. And a remarkable 177% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Lexibook - Linguistic Electronic System Société anonyme does have some risks though, and we've spotted 2 warning signs for Lexibook - Linguistic Electronic System Société anonyme that you might be interested in.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.