The Returns On Capital At Luka Koper d.d (LJSE:LKPG) Don't Inspire Confidence

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Luka Koper d.d (LJSE:LKPG), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Luka Koper d.d:

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

0.053 = €30m ÷ (€626m - €62m) (Based on the trailing twelve months to March 2021).

Thus, Luka Koper d.d has an ROCE of 5.3%. In absolute terms, that's a low return but it's around the Infrastructure industry average of 6.1%.

View our latest analysis for Luka Koper d.d

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 Luka Koper d.d, check out these free graphs here.

What Can We Tell From Luka Koper d.d's ROCE Trend?

In terms of Luka Koper d.d's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 10% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Luka Koper d.d's ROCE

To conclude, we've found that Luka Koper d.d is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 42% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know about the risks facing Luka Koper d.d, we've discovered 1 warning sign that you should be aware of.

While Luka Koper d.d 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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