Lloyds Enterprises (NSE:LLOYDSENT) Is Looking To Continue Growing Its Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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, we've noticed some promising trends at Lloyds Enterprises (NSE:LLOYDSENT) so let's look a bit deeper.

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Understanding 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 Lloyds Enterprises:

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

0.021 = ₹974m ÷ (₹56b - ₹9.0b) (Based on the trailing twelve months to September 2025).

Therefore, Lloyds Enterprises has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 7.6%.

See our latest analysis for Lloyds Enterprises

Historical performance is a great place to start when researching a stock so above you can see the gauge for Lloyds Enterprises' ROCE against it's prior returns. If you're interested in investigating Lloyds Enterprises' past further, check out this free graph covering Lloyds Enterprises' past earnings, revenue and cash flow.

What Can We Tell From Lloyds Enterprises' ROCE Trend?

We're delighted to see that Lloyds Enterprises is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 2.1% on its capital. In addition to that, Lloyds Enterprises is employing 1,322% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 16% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

What We Can Learn From Lloyds Enterprises' ROCE

To the delight of most shareholders, Lloyds Enterprises has now broken into profitability. Since the stock has returned a solid 28% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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

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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.