We Like These Underlying Trends At Boart Longyear (ASX:BLY)

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Boart Longyear (ASX:BLY) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Boart Longyear, this is the formula:

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

0.059 = US$28m ÷ (US$600m - US$120m) (Based on the trailing twelve months to June 2020).

So, Boart Longyear has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 9.5%.

View our latest analysis for Boart Longyear

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 Boart Longyear's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Like most people, we're pleased that Boart Longyear is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 5.9% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 34% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. Boart Longyear could be selling under-performing assets since the ROCE is improving.

The Key Takeaway

In summary, it's great to see that Boart Longyear has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has dived 98% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

If you want to continue researching Boart Longyear, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Boart Longyear isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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