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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Brunel International's (AMS:BRNL) trend of ROCE, we liked what we saw.
Understanding 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. The formula for this calculation on Brunel International is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = €55m ÷ (€625m - €174m) (Based on the trailing twelve months to June 2024).
Therefore, Brunel International has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 15% generated by the Professional Services industry.
View our latest analysis for Brunel International
In the above chart we have measured Brunel International'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 analyst report for Brunel International .
What Can We Tell From Brunel International's ROCE Trend?
While the current returns on capital are decent, they haven't changed much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 45% in that time. Since 12% 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.
What We Can Learn From Brunel International's ROCE
In the end, Brunel International has proven its ability to adequately reinvest capital at good rates of return. And given the stock has only risen 13% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.
If you want to continue researching Brunel International, you might be interested to know about the 2 warning signs that our analysis has discovered.