There's Been No Shortage Of Growth Recently For J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing's (ATH:MIN) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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.

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. The formula for this calculation on J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing is:

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

0.12 = €1.2m ÷ (€28m - €18m) (Based on the trailing twelve months to December 2023).

Thus, J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Luxury industry average of 14%.

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

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing.

What Can We Tell From J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing's ROCE Trend?

We're pretty happy with how the ROCE has been trending at J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing. We found that the returns on capital employed over the last five years have risen by 432%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 45% 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.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 64% of the business, which is more than it was five years ago. 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.

What We Can Learn From J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing's ROCE

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. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 4 warning signs with J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing (at least 3 which are a bit concerning) , and understanding them would certainly be useful.

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.