Has Billington Holdings (LON:BILN) Got What It Takes To Become A Multi-Bagger?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. In light of that, when we looked at Billington Holdings (LON:BILN) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

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 Billington Holdings is:

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

0.13 = UK£3.9m ÷ (UK£49m - UK£21m) (Based on the trailing twelve months to June 2020).

So, Billington Holdings has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.

Check out our latest analysis for Billington Holdings

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

How Are Returns Trending?

In terms of Billington Holdings' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 18% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

On a separate but related note, it's important to know that Billington Holdings has a current liabilities to total assets ratio of 42%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Billington Holdings' ROCE

To conclude, we've found that Billington Holdings is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 28% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Like most companies, Billington Holdings does come with some risks, and we've found 2 warning signs that you should be aware of.

While Billington Holdings 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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