Returns On Capital At BMTC Group (TSE:GBT) Paint An Interesting Picture

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating BMTC Group (TSE:GBT), we don't think it's current trends fit the mold of a multi-bagger.

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 BMTC Group is:

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

0.20 = CA$58m ÷ (CA$466m - CA$173m) (Based on the trailing twelve months to October 2020).

Thus, BMTC Group has an ROCE of 20%. On its own, that's a standard return, however it's much better than the 10% generated by the Specialty Retail industry.

View our latest analysis for BMTC Group

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

What Does the ROCE Trend For BMTC Group Tell Us?

When we looked at the ROCE trend at BMTC Group, we didn't gain much confidence. Around five years ago the returns on capital were 32%, but since then they've fallen to 20%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Bottom Line

In summary, we're somewhat concerned by BMTC Group's diminishing returns on increasing amounts of capital. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for BMTC Group (of which 1 is a bit concerning!) that 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. 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.
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