Returns On Capital Signal Tricky Times Ahead For LACROIX Group (EPA:LACR)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at LACROIX Group (EPA:LACR), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on LACROIX Group is:

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

0.046 = €14m ÷ (€576m - €278m) (Based on the trailing twelve months to June 2024).

So, LACROIX Group has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 7.1%.

See 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 for free.

The Trend Of ROCE

When we looked at the ROCE trend at LACROIX Group, we didn't gain much confidence. Around five years ago the returns on capital were 9.9%, but since then they've fallen to 4.6%. However it looks like LACROIX Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

On a separate but related note, it's important to know that LACROIX Group has a current liabilities to total assets ratio of 48%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

Bringing it all together, while we're somewhat encouraged by LACROIX Group's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 37% in the last five years. Therefore based on the analysis done in this article, we don't think LACROIX Group has the makings of a multi-bagger.

On a final note, we found 3 warning signs for LACROIX Group (1 is potentially serious) you should be aware of.

While LACROIX Group 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.