Returns Are Gaining Momentum At Lombard & Medot (EPA:MLCAC)

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. So when we looked at Lombard & Medot (EPA:MLCAC) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Lombard & Medot is:

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

0.0085 = €256k ÷ (€35m - €5.0m) (Based on the trailing twelve months to December 2022).

Thus, Lombard & Medot has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 8.9%.

See our latest analysis for Lombard & Medot

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 Lombard & Medot has performed in the past in other metrics, you can view this free graph of Lombard & Medot's past earnings, revenue and cash flow.

What Does the ROCE Trend For Lombard & Medot Tell Us?

Shareholders will be relieved that Lombard & Medot has broken into profitability. The company was generating losses two years ago, but has managed to turn it around and as we saw earlier is now earning 0.8%, 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. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

Our Take On Lombard & Medot's ROCE

To bring it all together, Lombard & Medot has done well to increase the returns it's generating from its capital employed. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 3.7% to shareholders. So with that in mind, we think the stock deserves further research.

On a final note, we've found 2 warning signs for Lombard & Medot that we think you should be aware of.

While Lombard & Medot may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.