Shareholders Would Enjoy A Repeat Of Lexibook - Linguistic Electronic System Société anonyme's (EPA:ALLEX) Recent Growth In Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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, the ROCE of Lexibook - Linguistic Electronic System Société anonyme (EPA:ALLEX) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Lexibook - Linguistic Electronic System Société anonyme, this is the formula:

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

0.27 = €5.4m ÷ (€44m - €24m) (Based on the trailing twelve months to September 2023).

Therefore, Lexibook - Linguistic Electronic System Société anonyme has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Consumer Durables industry average of 13%.

View 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'd like to look at how Lexibook - Linguistic Electronic System Société anonyme has performed in the past in other metrics, you can view this free graph of Lexibook - Linguistic Electronic System Société anonyme's past earnings, revenue and cash flow.

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

The fact that Lexibook - Linguistic Electronic System Société anonyme is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 27% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Lexibook - Linguistic Electronic System Société anonyme is utilizing 271% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Lexibook - Linguistic Electronic System Société anonyme has decreased current liabilities to 54% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

In Conclusion...

To the delight of most shareholders, Lexibook - Linguistic Electronic System Société anonyme has now broken into profitability. Since the stock has returned a staggering 320% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 3 warning signs with Lexibook - Linguistic Electronic System Société anonyme and understanding these should be part of your investment process.

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.