Returns On Capital At Billboard AD (BUL:BBRD) Have Hit The Brakes

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Billboard AD (BUL:BBRD) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Billboard AD, this is the formula:

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

0.059 = лв1.8m ÷ (лв42m - лв11m) (Based on the trailing twelve months to September 2022).

Therefore, Billboard AD has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Media industry average of 12%.

Check out our latest analysis for Billboard AD

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

The Trend Of ROCE

Over the past five years, Billboard AD's ROCE has remained relatively flat while the business is using 21% less capital than before. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. In addition to that, since the ROCE doesn't scream "quality" at 5.9%, it's hard to get excited about these developments.

What We Can Learn From Billboard AD's ROCE

It's a shame to see that Billboard AD is effectively shrinking in terms of its capital base. Since the stock has declined 47% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Billboard AD has the makings of a multi-bagger.

Billboard AD does have some risks, we noticed 5 warning signs (and 3 which are a bit unpleasant) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.