Yahoo Finance Investors Will Want Burger Fuel Group's (NZSE:BFG) Growth In ROCE To Persist
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Burger Fuel Group (NZSE:BFG) and its trend of ROCE, we really liked what we saw.
What is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Burger Fuel Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.024 = NZ$975k ÷ (NZ$46m - NZ$5.2m) (Based on the trailing twelve months to March 2021).
Therefore, Burger Fuel Group has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 5.8%.
Check out our latest analysis for Burger Fuel Group
Historical performance is a great place to start when researching a stock so above you can see the gauge for Burger Fuel Group's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Burger Fuel Group, check out these free graphs here.
What Can We Tell From Burger Fuel Group's ROCE Trend?
The fact that Burger Fuel Group is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 2.4% which is a sight for sore eyes. Not only that, but the company is utilizing 221% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
Our Take On Burger Fuel Group's ROCE
Long story short, we're delighted to see that Burger Fuel Group's reinvestment activities have paid off and the company is now profitable. Although the company may be facing some issues elsewhere since the stock has plunged 74% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.
Like most companies, Burger Fuel Group does come with some risks, and we've found 3 warning signs that you should be aware of.
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.
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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