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There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 WildBrain's (TSE:WILD) returns on capital, so let's have a look.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for WildBrain, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.097 = CA$71m ÷ (CA$1.0b - CA$273m) (Based on the trailing twelve months to December 2024).
So, WildBrain has an ROCE of 9.7%. Even though it's in line with the industry average of 9.6%, it's still a low return by itself.
See our latest analysis for WildBrain
In the above chart we have measured WildBrain's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for WildBrain .
How Are Returns Trending?
You'd find it hard not to be impressed with the ROCE trend at WildBrain. The figures show that over the last five years, returns on capital have grown by 139%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 32% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.
The Bottom Line On WildBrain's ROCE
From what we've seen above, WildBrain has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a solid 85% to shareholders over the last five years, 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.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for WILD that compares the share price and estimated value.