Should We Be Excited About The Trends Of Returns At Baikowski Société anonyme (EPA:ALBKK)?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Baikowski Société anonyme (EPA:ALBKK) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Baikowski Société anonyme is:

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

0.028 = €1.5m ÷ (€71m - €17m) (Based on the trailing twelve months to June 2020).

So, Baikowski Société anonyme has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 8.3%.

View our latest analysis for Baikowski Société anonyme

Historical performance is a great place to start when researching a stock so above you can see the gauge for Baikowski Société anonyme's ROCE against it's prior returns. If you're interested in investigating Baikowski Société anonyme's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

When we looked at the ROCE trend at Baikowski Société anonyme, we didn't gain much confidence. Around three years ago the returns on capital were 13%, but since then they've fallen to 2.8%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Baikowski Société anonyme's ROCE

In summary, Baikowski Société anonyme is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And in the last year, the stock has given away 20% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Baikowski Société anonyme has the makings of a multi-bagger.

One final note, you should learn about the 3 warning signs we've spotted with Baikowski Société anonyme (including 2 which is don't sit too well with us) .

While Baikowski Société anonyme 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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