Losinjska Plovidba Holding d.d (ZGSE:LPLH) Is Experiencing Growth In Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Losinjska Plovidba Holding d.d (ZGSE:LPLH) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Losinjska Plovidba Holding d.d, this is the formula:

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

0.057 = Kn11m ÷ (Kn220m - Kn18m) (Based on the trailing twelve months to September 2022).

So, Losinjska Plovidba Holding d.d has an ROCE of 5.7%. Ultimately, that's a low return and it under-performs the Shipping industry average of 12%.

Check out our latest analysis for Losinjska Plovidba Holding d.d

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

So How Is Losinjska Plovidba Holding d.d's ROCE Trending?

Losinjska Plovidba Holding d.d is showing promise given that its ROCE is trending up and to the right. 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 39,253% over the last five years. 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. 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 Key Takeaway

In summary, we're delighted to see that Losinjska Plovidba Holding d.d has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we've found 2 warning signs for Losinjska Plovidba Holding d.d that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.