We Like These Underlying Trends At I.Kloukinas-I.Lappas (ATH:KLM)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at I.Kloukinas-I.Lappas (ATH:KLM) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for I.Kloukinas-I.Lappas:

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).

So, I.Kloukinas-I.Lappas has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 10%.

See our latest analysis for I.Kloukinas-I.Lappas

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'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.

So How Is I.Kloukinas-I.Lappas' ROCE Trending?

While there are companies with higher returns on capital out there, we still find the trend at I.Kloukinas-I.Lappas promising. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 44% over the last five years. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On I.Kloukinas-I.Lappas' ROCE

To sum it up, I.Kloukinas-I.Lappas is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 175% 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.

I.Kloukinas-I.Lappas does have some risks, we noticed 3 warning signs (and 1 which is a bit concerning) we think you should know about.

While I.Kloukinas-I.Lappas isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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