Investors Met With Slowing Returns on Capital At Lassonde Industries (TSE:LAS.A)
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at Lassonde Industries (TSE:LAS.A) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Lassonde Industries, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.093 = CA$120m ÷ (CA$1.6b - CA$328m) (Based on the trailing twelve months to September 2023).
Thus, Lassonde Industries has an ROCE of 9.3%. In absolute terms, that's a low return, but it's much better than the Food industry average of 7.6%.
See our latest analysis for Lassonde Industries
In the above chart we have measured Lassonde Industries' 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 Lassonde Industries.
What Can We Tell From Lassonde Industries' ROCE Trend?
The returns on capital haven't changed much for Lassonde Industries in recent years. The company has consistently earned 9.3% for the last five years, and the capital employed within the business has risen 22% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
What We Can Learn From Lassonde Industries' ROCE
In conclusion, Lassonde Industries has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 22% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Lassonde Industries has the makings of a multi-bagger.
One more thing to note, we've identified 1 warning sign with Lassonde Industries and understanding this should be part of your investment process.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.
