We Like These Underlying Return On Capital Trends At Lords Group Trading (LON:LORD)

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 on that note, Lords Group Trading (LON:LORD) looks quite promising in regards to its trends of return on capital.

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Understanding 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 Lords Group Trading is:

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

0.029 = UK£4.0m ÷ (UK£247m - UK£108m) (Based on the trailing twelve months to June 2025).

Therefore, Lords Group Trading has an ROCE of 2.9%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 12%.

Check out 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 .

The Trend Of ROCE

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 2.9%. The amount of capital employed has increased too, by 331%. So we're very much inspired by what we're seeing at Lords Group Trading thanks to its ability to profitably reinvest capital.

One more thing to note, Lords Group Trading has decreased current liabilities to 44% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. 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.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Lords Group Trading has. And since the stock has fallen 48% over the last three years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing Lords Group Trading we've found 3 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.