Returns On Capital Are Showing Encouraging Signs At Brisbane Broncos (ASX:BBL)

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Brisbane Broncos (ASX:BBL) 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 Brisbane Broncos, this is the formula:

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

0.16 = AU$7.4m ÷ (AU$58m - AU$12m) (Based on the trailing twelve months to December 2023).

Therefore, Brisbane Broncos has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Entertainment industry average of 8.3% it's much better.

Check out our latest analysis for Brisbane Broncos

Historical performance is a great place to start when researching a stock so above you can see the gauge for Brisbane Broncos' ROCE against it's prior returns. If you'd like to look at how Brisbane Broncos has performed in the past in other metrics, you can view this free graph of Brisbane Broncos' past earnings, revenue and cash flow.

What Can We Tell From Brisbane Broncos' ROCE Trend?

The trends we've noticed at Brisbane Broncos are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 16%. The amount of capital employed has increased too, by 22%. So we're very much inspired by what we're seeing at Brisbane Broncos thanks to its ability to profitably reinvest capital.

Our Take On Brisbane Broncos' ROCE

In summary, it's great to see that Brisbane Broncos can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 1 warning sign for Brisbane Broncos you'll probably want to know about.

While Brisbane Broncos 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.