Returns on Capital Paint A Bright Future For Bisalloy Steel Group (ASX:BIS)

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. And in light of that, the trends we're seeing at Bisalloy Steel Group's (ASX:BIS) look very promising so lets take a look.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Bisalloy Steel Group, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.25 = AU$21m ÷ (AU$119m - AU$34m) (Based on the trailing twelve months to June 2024).

Therefore, Bisalloy Steel Group has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 11%.

Check out our latest analysis for Bisalloy Steel Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bisalloy Steel Group's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Bisalloy Steel Group.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Bisalloy Steel Group. Over the last five years, returns on capital employed have risen substantially to 25%. The amount of capital employed has increased too, by 124%. So we're very much inspired by what we're seeing at Bisalloy Steel Group thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 29%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On Bisalloy Steel Group's ROCE

To sum it up, Bisalloy Steel Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 313% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Bisalloy Steel Group can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Bisalloy Steel Group, we've discovered 1 warning sign that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.