The Return Trends At BATM Advanced Communications (LON:BVC) Look Promising

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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, BATM Advanced Communications (LON:BVC) looks quite promising in regards to its trends of return on capital.

Understanding 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. Analysts use this formula to calculate it for BATM Advanced Communications:

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

0.013 = US$1.6m ÷ (US$175m - US$47m) (Based on the trailing twelve months to December 2023).

So, BATM Advanced Communications has an ROCE of 1.3%. Ultimately, that's a low return and it under-performs the Communications industry average of 11%.

See our latest analysis for BATM Advanced Communications

roce

In the above chart we have measured BATM Advanced Communications' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for BATM Advanced Communications .

What Does the ROCE Trend For BATM Advanced Communications Tell Us?

The fact that BATM Advanced Communications is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 1.3% on its capital. Not only that, but the company is utilizing 42% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

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. And since the stock has fallen 61% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for BVC that compares the share price and estimated value.

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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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.