Luka Ploce d.d (ZGSE:LKPC) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Luka Ploce d.d's (ZGSE:LKPC) returns on capital, so let's have a look.

What is 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. Analysts use this formula to calculate it for Luka Ploce d.d:

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

0.095 = Kn56m ÷ (Kn618m - Kn32m) (Based on the trailing twelve months to March 2022).

Therefore, Luka Ploce d.d has an ROCE of 9.5%. In absolute terms, that's a low return, but it's much better than the Infrastructure industry average of 7.2%.

See our latest analysis for Luka Ploce d.d

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

The Trend Of ROCE

Luka Ploce d.d has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 9.5% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Luka Ploce d.d is utilizing 31% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line

Long story short, we're delighted to see that Luka Ploce d.d's reinvestment activities have paid off and the company is now profitable. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 18% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a final note, we found 2 warning signs for Luka Ploce d.d (1 is significant) you should be aware of.

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.