Investors Could Be Concerned With Brickworks' (ASX:BKW) Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Brickworks (ASX:BKW), we don't think it's current trends fit the mold of a multi-bagger.

We check all companies for important risks. See what we found for Brickworks in our free report.

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. The formula for this calculation on Brickworks is:

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

0.00034 = AU$1.9m ÷ (AU$5.8b - AU$252m) (Based on the trailing twelve months to January 2025).

Therefore, Brickworks has an ROCE of 0.03%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 8.0%.

Check out our latest analysis for Brickworks

In the above chart we have measured Brickworks' 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 analyst report for Brickworks .

What The Trend Of ROCE Can Tell Us

In terms of Brickworks' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 0.03% from 1.0% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Brickworks' ROCE

In summary, Brickworks is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 117% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Brickworks could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for BKW on our platform quite valuable.

While Brickworks may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.