Should You Be Impressed By Industrial Holding Bulgaria AD's (BUL:IHB) Returns on Capital?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Industrial Holding Bulgaria AD (BUL:IHB) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Industrial Holding Bulgaria AD:

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

0.017 = лв6.0m ÷ (лв382m - лв24m) (Based on the trailing twelve months to September 2020).

Therefore, Industrial Holding Bulgaria AD has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 8.6%.

See our latest analysis for Industrial Holding Bulgaria AD

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 want to delve into the historical earnings, revenue and cash flow of Industrial Holding Bulgaria AD, check out these free graphs here.

What Can We Tell From Industrial Holding Bulgaria AD's ROCE Trend?

Over the past five years, Industrial Holding Bulgaria AD's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Industrial Holding Bulgaria AD in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

On a side note, Industrial Holding Bulgaria AD has done well to reduce current liabilities to 6.3% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

Our Take On Industrial Holding Bulgaria AD's ROCE

We can conclude that in regards to Industrial Holding Bulgaria AD's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly then, the total return to shareholders over the last five years has been flat. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a final note, we've found 1 warning sign for Industrial Holding Bulgaria AD that we think you should be aware of.

While Industrial Holding Bulgaria AD 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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