L is B (TSE:145A) Hasn't Managed To Accelerate Its Returns

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at L is B (TSE:145A) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Understanding 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 L is B:

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

0.022 = JP¥48m ÷ (JP¥2.7b - JP¥545m) (Based on the trailing twelve months to December 2024).

So, L is B has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the IT industry average of 16%.

See our latest analysis for L is B

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

So How Is L is B's ROCE Trending?

There hasn't been much to report for L is B's returns and its level of capital employed because both metrics have been steady for the past . It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at L is B in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

What We Can Learn From L is B's ROCE

In a nutshell, L is B has been trudging along with the same returns from the same amount of capital over the last . Since the stock has declined 41% over the last year, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think L is B has the makings of a multi-bagger.

L is B does have some risks though, and we've spotted 3 warning signs for L is B that you might be interested in.

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.