To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. With that in mind, we've noticed some promising trends at Beyond International (ASX:BYI) so let's look a bit deeper.
Return On Capital Employed (ROCE): What is it?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Beyond International:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = AU$3.6m ÷ (AU$71m - AU$47m) (Based on the trailing twelve months to December 2021).
Thus, Beyond International has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 9.0% generated by the Entertainment industry.
See our latest analysis for Beyond International
Historical performance is a great place to start when researching a stock so above you can see the gauge for Beyond International's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Beyond International, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
We're pretty happy with how the ROCE has been trending at Beyond International. We found that the returns on capital employed over the last five years have risen by 20,803%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 53% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Beyond International may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 67% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.