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. So when we looked at the ROCE trend of Bisalloy Steel Group (ASX:BIS) we really liked what we saw.
Understanding 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)
0.27 = AU$19m ÷ (AU$107m - AU$34m) (Based on the trailing twelve months to June 2022).
Therefore, Bisalloy Steel Group has an ROCE of 27%. 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
Historical performance is a great place to start when researching a stock so above you can see the gauge for Bisalloy Steel Group's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Bisalloy Steel Group, check out these free graphs here.
How Are Returns Trending?
The trends we've noticed at Bisalloy Steel Group are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 27%. 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 97%. So we're very much inspired by what we're seeing at Bisalloy Steel Group thanks to its ability to profitably reinvest capital.
The Bottom Line
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Bisalloy Steel Group has. And a remarkable 239% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On a separate note, we've found 3 warning signs for Bisalloy Steel Group you'll probably want to know about.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
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