What Do The Returns At Lexibook - Linguistic Electronic System Société anonyme (EPA:ALLEX) Mean Going Forward?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Lexibook - Linguistic Electronic System Société anonyme (EPA:ALLEX) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Lexibook - Linguistic Electronic System Société anonyme:

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).

So, Lexibook - Linguistic Electronic System Société anonyme has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 7.9%.

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'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.

How Are Returns Trending?

We're delighted to see that Lexibook - Linguistic Electronic System Société anonyme is reaping rewards from its investments and has now 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 3.1%, which is always encouraging. While returns have increased, the amount of capital employed by Lexibook - Linguistic Electronic System Société anonyme has remained flat over the period. 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. Because in the end, a business can only get so efficient.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 58%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. 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. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

What We Can Learn From Lexibook - Linguistic Electronic System Société anonyme's ROCE

In summary, we're delighted to see that Lexibook - Linguistic Electronic System Société anonyme has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Given the stock has declined 52% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 3 warning signs we've spotted with Lexibook - Linguistic Electronic System Société anonyme (including 1 which can't be ignored) .

While Lexibook - Linguistic Electronic System Société anonyme isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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