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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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. 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 the ROCE trend of Bravura Solutions (ASX:BVS) we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Bravura Solutions:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.23 = AU$34m ÷ (AU$302m - AU$155m) (Based on the trailing twelve months to December 2024).
Thus, Bravura Solutions has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Software industry average of 14%.
View our latest analysis for Bravura Solutions
Above you can see how the current ROCE for Bravura Solutions 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 analyst report for Bravura Solutions .
What Can We Tell From Bravura Solutions' ROCE Trend?
You'd find it hard not to be impressed with the ROCE trend at Bravura Solutions. The figures show that over the last five years, returns on capital have grown by 87%. The company is now earning AU$0.2 per dollar of capital employed. In regards to capital employed, Bravura Solutions appears to been achieving more with less, since the business is using 59% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 51% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.
In Conclusion...
In a nutshell, we're pleased to see that Bravura Solutions has been able to generate higher returns from less capital. Since the stock has only returned 5.0% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.