What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it’s a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in BG T&A’s (KOSDAQ:046310) returns on capital, so let’s have a look.
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 BG T&A is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.17 = ₩11b ÷ (₩104b – ₩38b) (Based on the trailing twelve months to September 2020).
So, BG T&A has an ROCE of 17%. On its own, that’s a standard return, however it’s much better than the 8.3% generated by the Consumer Durables industry.
See our latest analysis for BG T&A
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 BG T&A’s past further, check out this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
Investors would be pleased with what’s happening at BG T&A. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 155% more capital is being employed now too. This can indicate that there’s plenty of opportunities to invest capital internally and at ever higher rates, a combination that’s common among multi-baggers.
One more thing to note, BG T&A has decreased current liabilities to 36% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that BG T&A has grown its returns without a reliance on increasing their current liabilities, which we’re very happy with.
The Bottom Line
All in all, it’s terrific to see that BG T&A is reaping the rewards from prior investments and is growing its capital base. And with a respectable 44% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it’s worth looking further into this stock because if BG T&A can keep these trends up, it could have a bright future ahead.
Since virtually every company faces some risks, it’s worth knowing what they are, and we’ve spotted 5 warning signs for BG T&A (of which 1 is significant!) that you should know about.
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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