Return Trends At Boat Rocker Media (TSE:BRMI) Aren't Appealing

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Boat Rocker Media (TSE:BRMI) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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 Boat Rocker Media is:

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

0.021 = CA$6.7m ÷ (CA$755m - CA$429m) (Based on the trailing twelve months to September 2022).

Therefore, Boat Rocker Media has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 8.4%.

See our latest analysis for Boat Rocker Media

In the above chart we have measured Boat Rocker Media's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Boat Rocker Media here for free.

How Are Returns Trending?

The returns on capital haven't changed much for Boat Rocker Media in recent years. Over the past three years, ROCE has remained relatively flat at around 2.1% and the business has deployed 101% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

On a separate but related note, it's important to know that Boat Rocker Media has a current liabilities to total assets ratio of 57%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

In conclusion, Boat Rocker Media has been investing more capital into the business, but returns on that capital haven't increased. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 71% over the last year. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Like most companies, Boat Rocker Media does come with some risks, and we've found 2 warning signs that you should be aware of.

While Boat Rocker Media isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.