Did you know there are some financial metrics that can provide clues of a potential 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. So when we looked at L’azurde Company for Jewelry (TADAWUL:4011) and its trend of ROCE, we really liked what we saw.
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. Analysts use this formula to calculate it for L’azurde Company for Jewelry:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.16 = ر.س78m ÷ (ر.س1.7b – ر.س1.2b) (Based on the trailing twelve months to June 2022).
So, L’azurde Company for Jewelry has an ROCE of 16%. In absolute terms, that’s a satisfactory return, but compared to the Luxury industry average of 11% it’s much better.
See our latest analysis for L’azurde Company for Jewelry
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’re interested in investigating L’azurde Company for Jewelry’s past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For L’azurde Company for Jewelry Tell Us?
L’azurde Company for Jewelry has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 21% over the last five years. So it’s likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn’t changed considerably. The company is doing well in that sense, and it’s worth investigating what the management team has planned for long term growth prospects.
Another thing to note, L’azurde Company for Jewelry has a high ratio of current liabilities to total assets of 71%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we’d like to see this reduce as that would mean fewer obligations bearing risks.
Our Take On L’azurde Company for Jewelry’s ROCE
To bring it all together, L’azurde Company for Jewelry has done well to increase the returns it’s generating from its capital employed. And since the stock has fallen 23% over the last five years, there might be an opportunity here. That being the case, research into the company’s current valuation metrics and future prospects seems fitting.
On a separate note, we’ve found 2 warning signs for L’azurde Company for Jewelry you’ll probably want to know about.
While L’azurde Company for Jewelry 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.
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