We Like These Underlying Return On Capital Trends At Loulis Mills (ATH:KYLO)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. 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 Loulis Mills' (ATH:KYLO) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Loulis Mills is:

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

0.027 = €3.9m ÷ (€171m - €29m) (Based on the trailing twelve months to June 2020).

So, Loulis Mills has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Food industry average of 8.1%.

Check out our latest analysis for Loulis Mills

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

What The Trend Of ROCE Can Tell Us

While there are companies with higher returns on capital out there, we still find the trend at Loulis Mills promising. The figures show that over the last five years, ROCE has grown 26% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 17%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On Loulis Mills' ROCE

To bring it all together, Loulis Mills has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 86% return over the last five years. In light of that, we think it's worth looking further into this stock because if Loulis Mills can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Loulis Mills we've found 4 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Loulis Mills 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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