Returns Are Gaining Momentum At LACROIX Group (EPA:LACR)

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. With that in mind, we've noticed some promising trends at LACROIX Group (EPA:LACR) so let's look a bit deeper.

What is 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. To calculate this metric for LACROIX Group, this is the formula:

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

0.081 = €16m ÷ (€375m - €178m) (Based on the trailing twelve months to December 2020).

Therefore, LACROIX Group has an ROCE of 8.1%. Even though it's in line with the industry average of 7.7%, it's still a low return by itself.

Check out our latest analysis for LACROIX Group

In the above chart we have measured LACROIX Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering LACROIX Group here for free.

What The Trend Of ROCE Can Tell Us

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 8.1%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 45%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, LACROIX Group's current liabilities are still rather high at 47% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On LACROIX Group's ROCE

All in all, it's terrific to see that LACROIX Group is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 215% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 3 warning signs facing LACROIX Group that you might find interesting.

While LACROIX Group 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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