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Baltic Classifieds Group's (LON:BCG) Returns On Capital Are Heading Higher

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So on that note, Baltic Classifieds Group (LON:BCG) looks quite promising in regards to its trends of return on capital.

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 Baltic Classifieds Group, this is the formula:

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

0.054 = €22m ÷ (€424m - €8.8m) (Based on the trailing twelve months to April 2022).

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So, Baltic Classifieds Group has an ROCE of 5.4%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 16%.

View our latest analysis for Baltic Classifieds Group

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Above you can see how the current ROCE for Baltic Classifieds Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Baltic Classifieds Group Tell Us?

Baltic Classifieds Group's ROCE growth is quite impressive. The figures show that over the last one year, ROCE has grown 43% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Baltic Classifieds Group's ROCE

To bring it all together, Baltic Classifieds Group has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 38% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Baltic Classifieds Group does come with some risks, and we've found 2 warning signs that 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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