WestBond Enterprises (CVE:WBE) Is Very Good At Capital Allocation

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. So when we looked at the ROCE trend of WestBond Enterprises (CVE:WBE) we really liked what we saw.

What is 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. Analysts use this formula to calculate it for WestBond Enterprises:

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

0.26 = CA$3.6m ÷ (CA$16m - CA$2.6m) (Based on the trailing twelve months to December 2020).

Thus, WestBond Enterprises has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 18% earned by companies in a similar industry.

See our latest analysis for WestBond Enterprises

Historical performance is a great place to start when researching a stock so above you can see the gauge for WestBond Enterprises' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of WestBond Enterprises, check out these free graphs here.

What Can We Tell From WestBond Enterprises' ROCE Trend?

WestBond Enterprises is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 26%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 34%. 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.

Our Take On WestBond Enterprises' ROCE

In summary, it's great to see that WestBond Enterprises can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if WestBond Enterprises can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 3 warning signs with WestBond Enterprises and understanding these should be part of your investment process.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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