Investors Should Be Encouraged By Big Technologies' (LON:BIG) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, the ROCE of Big Technologies (LON:BIG) looks great, so lets see what the trend can tell us.

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. Analysts use this formula to calculate it for Big Technologies:

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

0.20 = UK£21m ÷ (UK£113m - UK£9.2m) (Based on the trailing twelve months to December 2022).

So, Big Technologies has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 9.0%.

Check out our latest analysis for Big Technologies

Above you can see how the current ROCE for Big Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for Big Technologies

The Trend Of ROCE

We like the trends that we're seeing from Big Technologies. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 20%. The amount of capital employed has increased too, by 377%. So we're very much inspired by what we're seeing at Big Technologies thanks to its ability to profitably reinvest capital.

Our Take On Big Technologies' ROCE

All in all, it's terrific to see that Big Technologies is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 8.7% return over the last year. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 1 warning sign with Big Technologies and understanding it should be part of your investment process.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.