The Return Trends At Klea Holding (EPA:ALKLH) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Klea Holding (EPA:ALKLH) so let's look a bit deeper.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Klea Holding is:

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

0.059 = €1.9m ÷ (€38m - €5.1m) (Based on the trailing twelve months to December 2024).

Therefore, Klea Holding has an ROCE of 5.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.2%.

Check out our latest analysis for Klea Holding

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Klea Holding.

So How Is Klea Holding's ROCE Trending?

The fact that Klea Holding is now generating some pre-tax profits from its prior investments is very encouraging. About three years ago the company was generating losses but things have turned around because it's now earning 5.9% on its capital. And unsurprisingly, like most companies trying to break into the black, Klea Holding is utilizing 65% more capital than it was three years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 13%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Klea Holding has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Klea Holding's ROCE

To the delight of most shareholders, Klea Holding has now broken into profitability. Although the company may be facing some issues elsewhere since the stock has plunged 78% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

Klea Holding does have some risks though, and we've spotted 1 warning sign for Klea Holding that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.