Braime Group's (LON:BMT) Returns Have Hit A Wall

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. So, when we ran our eye over Braime Group's (LON:BMT) trend of ROCE, we liked what we saw.

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. Analysts use this formula to calculate it for Braime Group:

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

0.16 = UK£3.7m ÷ (UK£34m - UK£11m) (Based on the trailing twelve months to December 2023).

Thus, Braime Group has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Trade Distributors industry average of 15%.

See our latest analysis for Braime Group

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

What Does the ROCE Trend For Braime Group Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 16% for the last five years, and the capital employed within the business has risen 56% in that time. 16% is a pretty standard return, and it provides some comfort knowing that Braime Group has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

What We Can Learn From Braime Group's ROCE

The main thing to remember is that Braime Group has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 34% over the last five years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

Braime Group does have some risks though, and we've spotted 2 warning signs for Braime Group that you might be interested in.

While Braime Group 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.