T
o identify stocks with potential for long-term value multiplication, we should look for companies with a proven return on capital employed (ROCE) that's increasing and an expanding base of capital employed. This indicates a business reinvesting profits at higher rates of return.

    Let's examine Lead Real Estate (NASDAQ:LRE), which has a ROCE trend that doesn't impress. To calculate ROCE, we use the formula: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities). For Lead Real Estate, this results in an ROCE of 5.9%, significantly lower than the Consumer Durables industry average of 14%.

    Historical performance is essential when researching a stock. We can see that Lead Real Estate's ROCE has decreased over the last three years from 10% to 5.9%. However, revenue and capital employed have increased, suggesting the company may be investing in growth, which could lead to higher returns in the long run.

    Lead Real Estate has also reduced its current liabilities to 46% of total assets, potentially reducing risk but also affecting efficiency in generating ROCE. Despite this, we find it promising that revenue and capital employed have both increased for Lead Real Estate. With the stock having dived 75% in the last year, there may be other factors influencing the business' outlook.

    Reinvestment can pay off in the long run, making astute investors want to look further into this stock. If you're interested in learning more about Lead Real Estate's risks and potential opportunities, we've identified four warning signs (two potentially serious) that you should be aware of before investing.