Returns On Capital Are A Standout For Lloyds Metals and Energy (NSE:LLOYDSME)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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 Lloyds Metals and Energy's (NSE:LLOYDSME) returns on capital, so let's have a look.

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

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. Analysts use this formula to calculate it for Lloyds Metals and Energy:

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

0.33 = ₹20b ÷ (₹72b - ₹13b) (Based on the trailing twelve months to September 2024).

Therefore, Lloyds Metals and Energy has an ROCE of 33%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

View our latest analysis for Lloyds Metals and Energy

In the above chart we have measured Lloyds Metals and Energy's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Lloyds Metals and Energy .

What Does the ROCE Trend For Lloyds Metals and Energy Tell Us?

Lloyds Metals and Energy is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 33%. 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. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

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 66% return over the last year. In light of that, we think it's worth looking further into this stock because if Lloyds Metals and Energy can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Lloyds Metals and Energy we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.