Returns On Capital Are Showing Encouraging Signs At J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing (ATH:MIN)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing (ATH:MIN) looks quite promising in regards to its trends of return on capital.

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 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 ÷ (€27m - €17m) (Based on the trailing twelve months to December 2022).

So, J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing has an ROCE of 14%. That's a pretty standard return and it's in line with the industry average of 14%.

View 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 want to delve into the historical earnings, revenue and cash flow of J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing, check out these free graphs here.

So How Is J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing's ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing. The figures show that over the last five years, returns on capital have grown by 495%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing appears to been achieving more with less, since the business is using 48% less capital to run its operation. 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. Essentially the business now has suppliers or short-term creditors funding about 63% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

In Conclusion...

In a nutshell, we're pleased to see that J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing has been able to generate higher returns from less capital. Since the stock has returned a staggering 135% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing does have some risks, we noticed 4 warning signs (and 3 which are significant) we think you should know about.

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.