What Can The Trends At Levenhuk (MCX:LVHK) Tell Us About Their Returns?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Levenhuk's (MCX:LVHK) returns on capital, so let's have a look.

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 Levenhuk:

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

0.096 = ₽93m ÷ (₽1.5b - ₽546m) (Based on the trailing twelve months to June 2020).

Thus, Levenhuk has an ROCE of 9.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.7%.

Check out our latest analysis for Levenhuk

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Levenhuk, check out these free graphs here.

What Can We Tell From Levenhuk's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 9.6%. Basically the business is earning more per dollar of capital invested and in addition to that, 31% 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.

The Bottom Line

All in all, it's terrific to see that Levenhuk is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 1.0% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a separate note, we've found 1 warning sign for Levenhuk you'll probably want to know about.

While Levenhuk isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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