We Like These Underlying Return On Capital Trends At Mladinska knjiga Zalozba d. d (LJSE:MKZG)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, we've noticed some promising trends at Mladinska knjiga Zalozba d. d (LJSE:MKZG) so let's look a bit deeper.

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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 Mladinska knjiga Zalozba d. d, this is the formula:

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

0.042 = €2.1m ÷ (€68m - €17m) (Based on the trailing twelve months to December 2023).

Therefore, Mladinska knjiga Zalozba d. d has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Media industry average of 10%.

Check out our latest analysis for Mladinska knjiga Zalozba d. d

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mladinska knjiga Zalozba d. d'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 Mladinska knjiga Zalozba d. d.

How Are Returns Trending?

Mladinska knjiga Zalozba d. d has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 4.2% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

Our Take On Mladinska knjiga Zalozba d. d's ROCE

In summary, we're delighted to see that Mladinska knjiga Zalozba d. d has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with a respectable 55% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 3 warning signs for Mladinska knjiga Zalozba d. d that we think you should be aware of.

While Mladinska knjiga Zalozba d. d may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.