Groupe LDLC société anonyme's (EPA:ALLDL) Returns On Capital Are Heading Higher

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So when we looked at Groupe LDLC société anonyme (EPA:ALLDL) 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. Analysts use this formula to calculate it for Groupe LDLC société anonyme:

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

0.012 = €1.6m ÷ (€264m - €127m) (Based on the trailing twelve months to March 2024).

Therefore, Groupe LDLC société anonyme has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 9.9%.

Check out our latest analysis for Groupe LDLC société anonyme

In the above chart we have measured Groupe LDLC société anonyme's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Groupe LDLC société anonyme .

How Are Returns Trending?

Groupe LDLC société anonyme has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 1.2% on its capital. Not only that, but the company is utilizing 54% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Groupe LDLC société anonyme has decreased current liabilities to 48% 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.

What We Can Learn From Groupe LDLC société anonyme's ROCE

Overall, Groupe LDLC société anonyme gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 85% return over the last five years. In light of that, we think it's worth looking further into this stock because if Groupe LDLC société anonyme can keep these trends up, it could have a bright future ahead.

Groupe LDLC société anonyme does have some risks though, and we've spotted 2 warning signs for Groupe LDLC société anonyme that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.