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There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Big Technologies' (LON:BIG) returns on capital, so let's have a look.
What Is 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. To calculate this metric for Big Technologies, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = UK£20m ÷ (UK£126m - UK£7.2m) (Based on the trailing twelve months to June 2023).
So, Big Technologies has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 11% generated by the Commercial Services industry.
See our latest analysis for Big Technologies
Above you can see how the current ROCE for Big Technologies 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 Technologies.
So How Is Big Technologies' ROCE Trending?
The trends we've noticed at Big Technologies are quite reassuring. The data shows that returns on capital have increased substantially over the last four years to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 352% more capital is being employed now too. So we're very much inspired by what we're seeing at Big Technologies thanks to its ability to profitably reinvest capital.
One more thing to note, Big Technologies has decreased current liabilities to 5.7% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.
Our Take On Big Technologies' ROCE
All in all, it's terrific to see that Big Technologies is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 37% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.