Lloyds Metals and Energy (NSE:LLOYDSME) Is Investing Its Capital With Increasing Efficiency

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Lloyds Metals and Energy (NSE:LLOYDSME) we really liked what we saw.

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. To calculate this metric for Lloyds Metals and Energy, this is the formula:

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

0.35 = ₹21b ÷ (₹72b - ₹13b) (Based on the trailing twelve months to December 2024).

Therefore, Lloyds Metals and Energy has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 14%.

View our latest analysis for Lloyds Metals and Energy

Above you can see how the current ROCE for Lloyds Metals and Energy compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Lloyds Metals and Energy .

How Are Returns Trending?

Investors would be pleased with what's happening at Lloyds Metals and Energy. The data shows that returns on capital have increased substantially over the last five years to 35%. Basically the business is earning more per dollar of capital invested and in addition to that, 1,153% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

To sum it up, Lloyds Metals and Energy has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 94% return over the last year. Therefore, we think it would be worth your time to check if these trends are going to continue.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for LLOYDSME on our platform that is definitely worth checking out.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.