Returns At Lords Group Trading (LON:LORD) Are On The Way Up

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Lords Group Trading (LON:LORD) so let's look a bit deeper.

Our free stock report includes 3 warning signs investors should be aware of before investing in Lords Group Trading. Read for free now.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Lords Group Trading:

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

0.066 = UK£9.2m ÷ (UK£237m - UK£98m) (Based on the trailing twelve months to June 2024).

Thus, Lords Group Trading has an ROCE of 6.6%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 14%.

See our latest analysis for Lords Group Trading

Above you can see how the current ROCE for Lords Group Trading compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Lords Group Trading .

So How Is Lords Group Trading's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 6.6%. Basically the business is earning more per dollar of capital invested and in addition to that, 485% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 41%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Lords Group Trading has grown its returns without a reliance on increasing their current liabilities, which we're very happy with. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Bottom Line On Lords Group Trading's ROCE

All in all, it's terrific to see that Lords Group Trading is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 65% in the last three years. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing: We've identified 3 warning signs with Lords Group Trading (at least 1 which is concerning) , and understanding them would certainly be useful.

While Lords Group Trading 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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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.