Here's What To Make Of BCE's (TSE:BCE) Decelerating Rates Of Return

There are a few key trends to look for if we want to identify the next 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at BCE (TSE:BCE), it didn't seem to tick all of these boxes.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for BCE, this is the formula:

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

0.093 = CA$5.6b ÷ (CA$73b - CA$13b) (Based on the trailing twelve months to March 2024).

So, BCE has an ROCE of 9.3%. Even though it's in line with the industry average of 8.9%, it's still a low return by itself.

View our latest analysis for BCE

Above you can see how the current ROCE for BCE compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for BCE .

What Does the ROCE Trend For BCE Tell Us?

There are better returns on capital out there than what we're seeing at BCE. Over the past five years, ROCE has remained relatively flat at around 9.3% and the business has deployed 22% 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.

The Bottom Line On BCE's ROCE

In conclusion, BCE has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 1.9% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

BCE does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is significant...

While BCE 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.

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