Returns Are Gaining Momentum At BG Agro AD (BUL:BGAG)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, BG Agro AD (BUL:BGAG) looks quite promising in regards to its trends of return on capital.

Understanding 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. The formula for this calculation on BG Agro AD is:

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

0.12 = лв13m ÷ (лв162m - лв57m) (Based on the trailing twelve months to June 2022).

So, BG Agro AD has an ROCE of 12%. By itself that's a normal return on capital and it's in line with the industry's average returns of 12%.

See our latest analysis for BG Agro AD

Historical performance is a great place to start when researching a stock so above you can see the gauge for BG Agro AD's ROCE against it's prior returns. If you're interested in investigating BG Agro AD's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For BG Agro AD Tell Us?

BG Agro AD is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 60% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

To sum it up, BG Agro AD has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Astute investors may have an opportunity here because the stock has declined 35% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

BG Agro AD does have some risks, we noticed 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.

While BG Agro AD 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.