Britannia Life Sciences (CSE:BLAB) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Britannia Life Sciences (CSE:BLAB) 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 Britannia Life Sciences is:

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

0.084 = CA$1.6m ÷ (CA$24m - CA$5.3m) (Based on the trailing twelve months to September 2023).

Thus, Britannia Life Sciences has an ROCE of 8.4%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 12%.

View our latest analysis for Britannia Life Sciences

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'd like to look at how Britannia Life Sciences has performed in the past in other metrics, you can view this free graph of Britannia Life Sciences' past earnings, revenue and cash flow.

So How Is Britannia Life Sciences' ROCE Trending?

We're delighted to see that Britannia Life Sciences is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses three years ago, but now it's earning 8.4% which is a sight for sore eyes. Not only that, but the company is utilizing 229% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Britannia Life Sciences has decreased current liabilities to 22% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Britannia Life Sciences has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Britannia Life Sciences' ROCE

In summary, it's great to see that Britannia Life Sciences has managed to break into profitability and is continuing to reinvest in its business. Given the stock has declined 13% in the last year, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing Britannia Life Sciences we've found 4 warning signs (3 are a bit unpleasant!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.