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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Bisalloy Steel Group's (ASX:BIS) returns on capital, so let's have a look.
What Is Return On Capital Employed (ROCE)?
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. The formula for this calculation on Bisalloy Steel Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.25 = AU$21m ÷ (AU$119m - AU$34m) (Based on the trailing twelve months to June 2024).
Therefore, Bisalloy Steel Group has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 10%.
See our latest analysis for Bisalloy Steel Group
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'd like to look at how Bisalloy Steel Group has performed in the past in other metrics, you can view this free graph of Bisalloy Steel Group's past earnings, revenue and cash flow.
What Does the ROCE Trend For Bisalloy Steel Group Tell Us?
Bisalloy Steel Group is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 25%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 124%. So we're very much inspired by what we're seeing at Bisalloy Steel Group thanks to its ability to profitably reinvest capital.
One more thing to note, Bisalloy Steel Group has decreased current liabilities to 29% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.
The Key Takeaway
To sum it up, Bisalloy Steel Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 373% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.