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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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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 when we looked at the ROCE trend of Big River Industries (ASX:BRI) 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. To calculate this metric for Big River Industries, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = AU$37m ÷ (AU$276m - AU$90m) (Based on the trailing twelve months to June 2023).
Thus, Big River Industries has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 8.6% earned by companies in a similar industry.
View our latest analysis for Big River Industries
Above you can see how the current ROCE for Big River Industries compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Big River Industries.
What Can We Tell From Big River Industries' ROCE Trend?
Investors would be pleased with what's happening at Big River Industries. The data shows that returns on capital have increased substantially over the last five years to 20%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 178%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
In Conclusion...
All in all, it's terrific to see that Big River Industries is reaping the rewards from prior investments and is growing its capital base. And with a respectable 49% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Big River Industries can keep these trends up, it could have a bright future ahead.