Badger Infrastructure Solutions (TSE:BDGI) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Badger Infrastructure Solutions (TSE:BDGI), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Badger Infrastructure Solutions, this is the formula:

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

0.04 = US$17m ÷ (US$513m - US$95m) (Based on the trailing twelve months to June 2022).

So, Badger Infrastructure Solutions has an ROCE of 4.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 4.0%.

Check out our latest analysis for Badger Infrastructure Solutions

Above you can see how the current ROCE for Badger Infrastructure Solutions compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Badger Infrastructure Solutions.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Badger Infrastructure Solutions, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 4.0% from 16% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Badger Infrastructure Solutions' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Badger Infrastructure Solutions. These trends are starting to be recognized by investors since the stock has delivered a 28% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

On a final note, we've found 2 warning signs for Badger Infrastructure Solutions that we think you should be aware of.

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.