J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing (ATH:MIN) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Speaking of which, we noticed some great changes in J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing's (ATH:MIN) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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 J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing:

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

0.14 = €1.4m ÷ (€28m - €18m) (Based on the trailing twelve months to June 2022).

Thus, J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing has an ROCE of 14%. By itself that's a normal return on capital and it's in line with the industry's average returns of 14%.

See our latest analysis for J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing

Historical performance is a great place to start when researching a stock so above you can see the gauge for J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing's ROCE against it's prior returns. If you'd like to look at how J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 353%. The company is now earning €0.1 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 49% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 66% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

In Conclusion...

In the end, J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing has proven it's capital allocation skills are good with those higher returns from less amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

If you want to know some of the risks facing J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing we've found 3 warning signs (2 are a bit unpleasant!) that you should be aware of before investing here.

While J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing 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.