Yahoo Finance BATM Advanced Communications (LON:BVC) Is Looking To Continue Growing Its Returns On Capital
Did you know there are some financial metrics that can provide clues of a potential 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in BATM Advanced Communications' (LON:BVC) returns on capital, so let's have a look.
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 BATM Advanced Communications is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = US$14m ÷ (US$200m - US$64m) (Based on the trailing twelve months to December 2020).
Thus, BATM Advanced Communications has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 8.3% generated by the Communications industry.
See our latest analysis for BATM Advanced Communications
Above you can see how the current ROCE for BATM Advanced Communications compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering BATM Advanced Communications here for free.
How Are Returns Trending?
BATM Advanced Communications has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 10% which is a sight for sore eyes. In addition to that, BATM Advanced Communications is employing 53% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
The Bottom Line On BATM Advanced Communications' ROCE
Long story short, we're delighted to see that BATM Advanced Communications' reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 405% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if BATM Advanced Communications can keep these trends up, it could have a bright future ahead.
BATM Advanced Communications does have some risks though, and we've spotted 1 warning sign for BATM Advanced Communications that you might be interested in.
While BATM Advanced Communications may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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