Biokarpet (ATH:BIOKA) Is Doing The Right Things To Multiply Its Share Price

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Biokarpet (ATH:BIOKA) so let's look a bit deeper.

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 Biokarpet:

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

0.11 = €14m ÷ (€197m - €79m) (Based on the trailing twelve months to June 2022).

Therefore, Biokarpet has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Metals and Mining industry average of 14%.

See our latest analysis for Biokarpet

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

What Does the ROCE Trend For Biokarpet Tell Us?

Biokarpet has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 293% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 40% of its operations, which isn't ideal. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

Our Take On Biokarpet's ROCE

To bring it all together, Biokarpet has done well to increase the returns it's generating from its capital employed. And a remarkable 284% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Biokarpet can keep these trends up, it could have a bright future ahead.

On a final note, we found 3 warning signs for Biokarpet (1 is a bit concerning) you should be aware of.

While Biokarpet 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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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.