If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Lecron Industrial Development Group (SZSE:300343) looks great, so lets see what the trend can tell us.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Lecron Industrial Development Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = CN¥502m ÷ (CN¥3.0b - CN¥950m) (Based on the trailing twelve months to March 2023).
So, Lecron Industrial Development Group has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 5.9% earned by companies in a similar industry.
Check out our latest analysis for Lecron Industrial Development Group
In the above chart we have measured Lecron Industrial Development Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
How Are Returns Trending?
You'd find it hard not to be impressed with the ROCE trend at Lecron Industrial Development Group. The data shows that returns on capital have increased by 133% over the trailing five years. The company is now earning CN¥0.2 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 54% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.
Our Take On Lecron Industrial Development Group's ROCE
In summary, it's great to see that Lecron Industrial Development Group has been able to turn things around and earn higher returns on lower amounts of capital. Considering the stock has delivered 27% 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. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.