Yahoo Finance Bon Natural Life (NASDAQ:BON) Has Some Way To Go To Become A Multi-Bagger
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Bon Natural Life's (NASDAQ:BON) trend of ROCE, we liked what we saw.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Bon Natural Life, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$5.7m ÷ (US$39m - US$8.5m) (Based on the trailing twelve months to March 2022).
Thus, Bon Natural Life has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 12% generated by the Chemicals industry.
See our latest analysis for Bon Natural Life
Above you can see how the current ROCE for Bon Natural Life 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 Can We Tell From Bon Natural Life's ROCE Trend?
While the current returns on capital are decent, they haven't changed much. Over the past three years, ROCE has remained relatively flat at around 18% and the business has deployed 272% more capital into its operations. 18% is a pretty standard return, and it provides some comfort knowing that Bon Natural Life has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
On a side note, Bon Natural Life has done well to reduce current liabilities to 22% of total assets over the last three years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.
The Bottom Line On Bon Natural Life's ROCE
The main thing to remember is that Bon Natural Life has proven its ability to continually reinvest at respectable rates of return. What's surprising though is that the stock has collapsed 79% over the last year, so there might be other areas of the business hurting its prospects. That's why it's worth looking further into this stock because while these fundamentals look good, there could be other issues with the business.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Bon Natural Life (of which 2 are a bit concerning!) that you should know about.
While Bon Natural Life 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.
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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