Yahoo Finance Capital Allocation Trends At Burger Fuel Group (NZSE:BFG) Aren't Ideal
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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Burger Fuel Group (NZSE:BFG) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Burger Fuel Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.017 = NZ$640k ÷ (NZ$42m - NZ$4.1m) (Based on the trailing twelve months to March 2022).
Therefore, Burger Fuel Group has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 7.5%.
Check out our latest analysis for Burger Fuel Group
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Burger Fuel Group, check out these free graphs here.
So How Is Burger Fuel Group's ROCE Trending?
On the surface, the trend of ROCE at Burger Fuel Group doesn't inspire confidence. Around five years ago the returns on capital were 7.3%, but since then they've fallen to 1.7%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Bottom Line On Burger Fuel Group's ROCE
In summary, Burger Fuel Group is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 75% over the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
One more thing: We've identified 3 warning signs with Burger Fuel Group (at least 1 which is concerning) , and understanding them would certainly be useful.
While Burger Fuel Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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