Yahoo Finance BQE Water's (CVE:BQE) Returns On Capital Are Heading Higher
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, BQE Water (CVE:BQE) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on BQE Water is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0095 = CA$134k ÷ (CA$16m - CA$2.0m) (Based on the trailing twelve months to June 2023).
So, BQE Water has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 7.9%.
See our latest analysis for BQE Water
Historical performance is a great place to start when researching a stock so above you can see the gauge for BQE Water's ROCE against it's prior returns. If you'd like to look at how BQE Water has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
BQE Water 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 1.0% which is a sight for sore eyes. In addition to that, BQE Water is employing 244% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
On a related note, the company's ratio of current liabilities to total assets has decreased to 12%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.
The Key Takeaway
Overall, BQE Water gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 213% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if BQE Water can keep these trends up, it could have a bright future ahead.
BQE Water does have some risks, we noticed 3 warning signs (and 1 which is a bit concerning) we think you should know about.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.
