Is There More Growth In Store For Bilendi's (EPA:ALBLD) Returns On Capital?

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Bilendi (EPA:ALBLD) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Bilendi, this is the formula:

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

0.10 = €2.7m ÷ (€37m - €11m) (Based on the trailing twelve months to June 2020).

Therefore, Bilendi has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 9.9%.

See our latest analysis for Bilendi

Above you can see how the current ROCE for Bilendi compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Bilendi here for free.

How Are Returns Trending?

The fact that Bilendi is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 10% on its capital. In addition to that, Bilendi is employing 70% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

Overall, Bilendi gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has returned a staggering 148% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Bilendi, we've discovered 4 warning signs that you should be aware of.

While Bilendi may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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