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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at Bechtle's (ETR:BC8) ROCE trend, we were pretty happy with what we saw.
What Is 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. The formula for this calculation on Bechtle is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = €382m ÷ (€3.8b - €1.3b) (Based on the trailing twelve months to December 2023).
Therefore, Bechtle has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the IT industry average of 9.6% it's much better.
Check out our latest analysis for Bechtle
Above you can see how the current ROCE for Bechtle 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 Bechtle .
The Trend Of ROCE
While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 87% more capital into its operations. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
In Conclusion...
To sum it up, Bechtle has simply been reinvesting capital steadily, at those decent rates of return. Therefore it's no surprise that shareholders have earned a respectable 82% return if they held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
If you're still interested in Bechtle it's worth checking out our FREE intrinsic value approximation for BC8 to see if it's trading at an attractive price in other respects.