Here's What's Concerning About Left Field Printing Group's (HKG:1540) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Although, when we looked at Left Field Printing Group (HKG:1540), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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 Left Field Printing Group is:

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

0.069 = HK$20m ÷ (HK$371m - HK$85m) (Based on the trailing twelve months to June 2022).

So, Left Field Printing Group has an ROCE of 6.9%. On its own, that's a low figure but it's around the 8.2% average generated by the Commercial Services industry.

Check out our latest analysis for Left Field Printing Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Left Field Printing Group's ROCE against it's prior returns. If you're interested in investigating Left Field Printing Group's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

On the surface, the trend of ROCE at Left Field Printing Group doesn't inspire confidence. Around five years ago the returns on capital were 19%, but since then they've fallen to 6.9%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Left Field Printing Group's ROCE

Bringing it all together, while we're somewhat encouraged by Left Field Printing Group's reinvestment in its own business, we're aware that returns are shrinking. Additionally, the stock's total return to shareholders over the last three years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing: We've identified 3 warning signs with Left Field Printing Group (at least 1 which is potentially serious) , and understanding them would certainly be useful.

While Left Field Printing Group 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. 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.