Loulis Food Ingredients (ATH:KYLO) Is Doing The Right Things To Multiply Its Share Price

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. So when we looked at Loulis Food Ingredients (ATH:KYLO) and its trend of ROCE, we really liked what we saw.

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What Is 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. The formula for this calculation on Loulis Food Ingredients is:

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

0.057 = €8.1m ÷ (€195m - €54m) (Based on the trailing twelve months to June 2024).

Therefore, Loulis Food Ingredients has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Food industry average of 10%.

See our latest analysis for Loulis Food Ingredients

Historical performance is a great place to start when researching a stock so above you can see the gauge for Loulis Food Ingredients' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Loulis Food Ingredients.

What The Trend Of ROCE Can Tell Us

Loulis Food Ingredients has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 206% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

As discussed above, Loulis Food Ingredients appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Considering the stock has delivered 36% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know more about Loulis Food Ingredients, we've spotted 4 warning signs, and 1 of them is a bit concerning.

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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.