Some Investors May Be Worried About Left Field Printing Group's (HKG:1540) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Left Field Printing Group (HKG:1540), we don't think it's current trends fit the mold of a multi-bagger.

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 Left Field Printing Group:

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).

Thus, Left Field Printing Group has an ROCE of 6.9%. In absolute terms, that's a low return but it's around the Commercial Services industry average of 8.1%.

See 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 want to delve into the historical earnings, revenue and cash flow of Left Field Printing Group, check out these free graphs here.

What Can We Tell From Left Field Printing Group's ROCE Trend?

In terms of Left Field Printing Group's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.9% from 19% five years ago. However it looks like Left Field Printing Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Left Field Printing Group's ROCE

In summary, Left Field Printing Group is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 15% over the last three years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Left Field Printing Group (of which 1 shouldn't be ignored!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.