If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at B&M European Value Retail (LON:BME) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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 B&M European Value Retail:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.16 = UK£452m ÷ (UK£3.6b - UK£776m) (Based on the trailing twelve months to September 2020).

Thus, B&M European Value Retail has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Multiline Retail industry average of 17%.

View our latest analysis for B&M European Value Retail

In the above chart we have measured B&M European Value Retail's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

B&M European Value Retail is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 123% more capital is being employed now too. So we're very much inspired by what we're seeing at B&M European Value Retail thanks to its ability to profitably reinvest capital.

The Bottom Line On B&M European Value Retail's ROCE

In summary, it's great to see that B&M European Value Retail can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.