Beam Communications Holdings (ASX:BCC) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. 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 Beam Communications Holdings' (ASX:BCC) returns on capital, so let's have 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. Analysts use this formula to calculate it for Beam Communications Holdings:

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

0.072 = AU$1.3m ÷ (AU$27m - AU$9.1m) (Based on the trailing twelve months to December 2022).

Therefore, Beam Communications Holdings has an ROCE of 7.2%. On its own, that's a low figure but it's around the 7.6% average generated by the Communications industry.

View our latest analysis for Beam Communications Holdings

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 Beam Communications Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

SWOT Analysis for Beam Communications Holdings

What Does the ROCE Trend For Beam Communications Holdings Tell Us?

We're delighted to see that Beam Communications Holdings is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 7.2% on its capital. And unsurprisingly, like most companies trying to break into the black, Beam Communications Holdings is utilizing 111% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Beam Communications Holdings' ROCE

In summary, it's great to see that Beam Communications Holdings has managed to break into profitability and is continuing to reinvest in its business. Considering the stock has delivered 5.6% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Beam Communications Holdings (of which 1 shouldn't be ignored!) that you should know about.

While Beam Communications Holdings 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. 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.