Lechwerke’s (FRA:LEC) Returns On Capital Not Reflecting Well On The Business

To avoid investing in a business that’s in decline, there’s a few financial metrics that can provide early indications of aging. Typically, we’ll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This combination can tell you that not only is the company investing less, it’s earning less on what it does invest. Having said that, after a brief look, Lechwerke (FRA:LEC) we aren’t filled with optimism, but let’s investigate further.

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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 Lechwerke:

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

0.038 = €24m ÷ (€1.7b – €1.0b) (Based on the trailing twelve months to June 2025).

Therefore, Lechwerke has an ROCE of 3.8%. Ultimately, that’s a low return and it under-performs the Electric Utilities industry average of 7.0%.

Check out our latest analysis for Lechwerke

DB:LEC Return on Capital Employed December 12th 2025

Historical performance is a great place to start when researching a stock so above you can see the gauge for Lechwerke’s ROCE against it’s prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Lechwerke.

The trend of returns that Lechwerke is generating are raising some concerns. Unfortunately, returns have declined substantially over the last five years to the 3.8% we see today. What’s equally concerning is that the amount of capital deployed in the business has shrunk by 63% over that same period. The fact that both are shrinking is an indication that the business is going through some tough times. If these underlying trends continue, we wouldn’t be too optimistic going forward.

On a side note, Lechwerke’s current liabilities have increased over the last five years to 62% of total assets, effectively distorting the ROCE to some degree. If current liabilities hadn’t increased as much as they did, the ROCE could actually be even lower. What this means is that in reality, a rather large portion of the business is being funded by the likes of the company’s suppliers or short-term creditors, which can bring some risks of its own.

In summary, it’s unfortunate that Lechwerke is shrinking its capital base and also generating lower returns. Long term shareholders who’ve owned the stock over the last five years have experienced a 18% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we’d consider looking elsewhere.

On a final note, we’ve found 1 warning sign for Lechwerke that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.