Yahoo Finance Slowing Rates Of Return At Bon Natural Life (NASDAQ:BON) Leave Little Room For Excitement
There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Bon Natural Life's (NASDAQ:BON) ROCE trend, we were pretty happy with what we saw.
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 Bon Natural Life is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = US$6.7m ÷ (US$47m - US$11m) (Based on the trailing twelve months to March 2023).
Thus, Bon Natural Life has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 11% it's much better.
See our latest analysis for Bon Natural Life
In the above chart we have measured Bon Natural Life'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 Can We Tell From Bon Natural Life's ROCE Trend?
While the current returns on capital are decent, they haven't changed much. The company has employed 331% more capital in the last four years, and the returns on that capital have remained stable at 19%. Since 19% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
On a side note, Bon Natural Life has done well to reduce current liabilities to 24% of total assets over the last four years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.
The Bottom Line
In the end, Bon Natural Life has proven its ability to adequately reinvest capital at good rates of return. Despite these impressive fundamentals, the stock has collapsed 72% over the last year, so there is likely other factors affecting the company's future prospects. In any case, we like the underlying trends and would look further into this stock.
Bon Natural Life does come with some risks though, we found 4 warning signs in our investment analysis, and 3 of those don't sit too well with us...
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
