Is There More Growth In Store For I.Kloukinas-I.Lappas' (ATH:KLM) Returns On Capital?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 I.Kloukinas-I.Lappas (ATH:KLM) so let's look a bit deeper.

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. The formula for this calculation on I.Kloukinas-I.Lappas is:

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

0.016 = €1.3m ÷ (€92m - €12m) (Based on the trailing twelve months to June 2020).

Therefore, I.Kloukinas-I.Lappas has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 11%.

Check out our latest analysis for I.Kloukinas-I.Lappas

Historical performance is a great place to start when researching a stock so above you can see the gauge for I.Kloukinas-I.Lappas' ROCE against it's prior returns. If you'd like to look at how I.Kloukinas-I.Lappas has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While there are companies with higher returns on capital out there, we still find the trend at I.Kloukinas-I.Lappas promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 44% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

In summary, we're delighted to see that I.Kloukinas-I.Lappas has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 145% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about I.Kloukinas-I.Lappas, we've spotted 3 warning signs, and 1 of them is concerning.

While I.Kloukinas-I.Lappas 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. 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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