Loma Negra Compañía Industrial Argentina Sociedad Anónima (NYSE:LOMA) Will Will Want To Turn Around Its Return Trends

By
Simply Wall St
Published
June 01, 2021
NYSE:LOMA
Source: Shutterstock

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Loma Negra Compañía Industrial Argentina Sociedad Anónima (NYSE:LOMA) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is 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. The formula for this calculation on Loma Negra Compañía Industrial Argentina Sociedad Anónima is:

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

0.17 = AR$10b ÷ (AR$81b - AR$18b) (Based on the trailing twelve months to March 2021).

Thus, Loma Negra Compañía Industrial Argentina Sociedad Anónima has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 13% generated by the Basic Materials industry.

See our latest analysis for Loma Negra Compañía Industrial Argentina Sociedad Anónima

roce
NYSE:LOMA Return on Capital Employed June 2nd 2021

In the above chart we have measured Loma Negra Compañía Industrial Argentina Sociedad Anónima'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 report for Loma Negra Compañía Industrial Argentina Sociedad Anónima.

What Does the ROCE Trend For Loma Negra Compañía Industrial Argentina Sociedad Anónima Tell Us?

In terms of Loma Negra Compañía Industrial Argentina Sociedad Anónima's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 17% from 49% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

On a related note, Loma Negra Compañía Industrial Argentina Sociedad Anónima has decreased its current liabilities to 22% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

Our Take On Loma Negra Compañía Industrial Argentina Sociedad Anónima's ROCE

To conclude, we've found that Loma Negra Compañía Industrial Argentina Sociedad Anónima is reinvesting in the business, but returns have been falling. And in the last three years, the stock has given away 47% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you want to continue researching Loma Negra Compañía Industrial Argentina Sociedad Anónima, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Loma Negra Compañía Industrial Argentina Sociedad Anónima 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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This article by Simply Wall St is general in nature. 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.
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