Returns At Baltic Classifieds Group (LON:BCG) Appear To Be Weighed Down

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Having said that, from a first glance at Baltic Classifieds Group (LON:BCG) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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. To calculate this metric for Baltic Classifieds Group, this is the formula:

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

0.059 = €24m ÷ (€420m - €11m) (Based on the trailing twelve months to October 2022).

Thus, Baltic Classifieds Group has an ROCE of 5.9%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 24%.

See our latest analysis for Baltic Classifieds Group

Above you can see how the current ROCE for Baltic Classifieds Group 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 Baltic Classifieds Group here for free.

How Are Returns Trending?

Things have been pretty stable at Baltic Classifieds Group, with its capital employed and returns on that capital staying somewhat the same for the last one year. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Baltic Classifieds Group in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. With fewer investment opportunities, it makes sense that Baltic Classifieds Group has been paying out a decent 33% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

What We Can Learn From Baltic Classifieds Group's ROCE

We can conclude that in regards to Baltic Classifieds Group's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 1.5% in the last year to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Like most companies, Baltic Classifieds Group does come with some risks, and we've found 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.