Should We Be Excited About The Trends Of Returns At LACROIX Group (EPA:LACR)?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, the ROCE of LACROIX Group (EPA:LACR) looks decent, right now, so lets see what the trend of returns can tell us.

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. Analysts use this formula to calculate it for LACROIX Group:

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

0.10 = €19m ÷ (€343m - €159m) (Based on the trailing twelve months to March 2020).

So, LACROIX Group has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 4.9% generated by the Electronic industry.

See our latest analysis for LACROIX Group

Above you can see how the current ROCE for LACROIX Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering LACROIX Group here for free.

What Does the ROCE Trend For LACROIX Group Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 10% and the business has deployed 47% more capital into its operations. 10% is a pretty standard return, and it provides some comfort knowing that LACROIX Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Another thing to note, LACROIX Group has a high ratio of current liabilities to total assets of 46%. 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.

The Bottom Line On LACROIX Group's ROCE

In the end, LACROIX Group has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 115% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing, we've spotted 4 warning signs facing LACROIX Group that you might find interesting.

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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