Yahoo Finance We Like These Underlying Return On Capital Trends At Burger Fuel Group (NZSE:BFG)
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, Burger Fuel Group (NZSE:BFG) looks quite promising in regards to its trends of return on capital.
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)
0.0021 = NZ$87k ÷ (NZ$46m - NZ$4.4m) (Based on the trailing twelve months to September 2020).
Thus, Burger Fuel Group has an ROCE of 0.2%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 5.5%.
View 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're interested in investigating Burger Fuel Group's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Burger Fuel Group Tell Us?
Burger Fuel Group has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 0.2% on its capital. And unsurprisingly, like most companies trying to break into the black, Burger Fuel Group is utilizing 207% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Bottom Line
To the delight of most shareholders, Burger Fuel Group has now broken into profitability. Although the company may be facing some issues elsewhere since the stock has plunged 81% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.
On a separate note, we've found 3 warning signs for Burger Fuel Group you'll probably want to know about.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
This article by Simply Wall St is general in nature. 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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