Brøndbyernes IF Fodbold's (CPH:BIF) Returns On Capital Are Heading Higher

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Brøndbyernes IF Fodbold's (CPH:BIF) returns on capital, so let's have a look.

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 Brøndbyernes IF Fodbold is:

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

0.15 = kr.43m ÷ (kr.357m - kr.78m) (Based on the trailing twelve months to June 2022).

Thus, Brøndbyernes IF Fodbold has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 13% generated by the Entertainment industry.

Check out the opportunities and risks within the DK Entertainment industry.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Brøndbyernes IF Fodbold's ROCE against it's prior returns. If you'd like to look at how Brøndbyernes IF Fodbold has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Brøndbyernes IF Fodbold has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 15% on its capital. And unsurprisingly, like most companies trying to break into the black, Brøndbyernes IF Fodbold is utilizing 116% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From Brøndbyernes IF Fodbold's ROCE

In summary, it's great to see that Brøndbyernes IF Fodbold has managed to break into profitability and is continuing to reinvest in its business. Given the stock has declined 21% in the last five years, 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.

Brøndbyernes IF Fodbold does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.