Yahoo Finance Returns At BQE Water (CVE:BQE) Are On The Way Up
To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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 on that note, BQE Water (CVE:BQE) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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 BQE Water:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.095 = CA$1.5m ÷ (CA$19m - CA$2.7m) (Based on the trailing twelve months to September 2023).
So, BQE Water has an ROCE of 9.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.5%.
Check out 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're interested in investigating BQE Water's past further, check out this free graph of past earnings, revenue and cash flow.
So How Is BQE Water's ROCE Trending?
We're delighted to see that BQE Water is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 9.5% on its capital. Not only that, but the company is utilizing 242% 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.
One more thing to note, BQE Water has decreased current liabilities to 14% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.
Our Take On BQE Water's ROCE
To the delight of most shareholders, BQE Water has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.
If you'd like to know more about BQE Water, we've spotted 4 warning signs, and 1 of them makes us a bit uncomfortable.
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.
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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.
