Yahoo Finance Returns On Capital Are Showing Encouraging Signs At Bon Natural Life (NASDAQ:BON)
What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Bon Natural Life (NASDAQ:BON) and its trend of ROCE, we really liked what we saw.
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. Analysts use this formula to calculate it for Bon Natural Life:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = US$5.9m ÷ (US$47m - US$9.6m) (Based on the trailing twelve months to September 2023).
So, Bon Natural Life has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 9.8% it's much better.
View our latest analysis for Bon Natural Life
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Bon Natural Life has performed in the past in other metrics, you can view this free graph of Bon Natural Life's past earnings, revenue and cash flow.
The Trend Of ROCE
Investors would be pleased with what's happening at Bon Natural Life. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. The amount of capital employed has increased too, by 368%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
On a related note, the company's ratio of current liabilities to total assets has decreased to 21%, 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
To sum it up, Bon Natural Life has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 43% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.
One final note, you should learn about the 3 warning signs we've spotted with Bon Natural Life (including 1 which is concerning) .
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.
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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.
