Returns At Brickability Group (LON:BRCK) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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, we've noticed some promising trends at Brickability Group (LON:BRCK) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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 Brickability Group is:

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

0.12 = UK£14m ÷ (UK£149m - UK£34m) (Based on the trailing twelve months to September 2020).

Thus, Brickability Group has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 7.4% generated by the Basic Materials industry.

See our latest analysis for Brickability Group

Above you can see how the current ROCE for Brickability Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Brickability Group.

What Does the ROCE Trend For Brickability Group Tell Us?

We like the trends that we're seeing from Brickability Group. Over the last two years, returns on capital employed have risen substantially to 12%. The amount of capital employed has increased too, by 31%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

All in all, it's terrific to see that Brickability Group is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 124% to shareholders over the last year, 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.

One more thing, we've spotted 3 warning signs facing Brickability Group that you might find interesting.

While Brickability 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. 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.
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