We Like These Underlying Trends At J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing (ATH:MIN)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing (ATH:MIN) so let's look a bit deeper.

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

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

0.035 = €676k ÷ (€26m - €7.3m) (Based on the trailing twelve months to June 2020).

Therefore, J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 8.1%.

See 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're interested in investigating J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

The fact that J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 3.5% on its capital. And unsurprisingly, like most companies trying to break into the black, J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing is utilizing 172% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 28%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

Long story short, we're delighted to see that J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 345% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing can keep these trends up, it could have a bright future ahead.

J. & B. Ladenis Bros - Minerva - Knitwear Manufacturing does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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