Does Biokarpet (ATH:BIOKA) Have The Makings Of A Multi-Bagger?

Did you know there are some financial metrics that can provide clues of a potential 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Biokarpet's (ATH:BIOKA) returns on capital, so let's have a look.

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 Biokarpet:

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

0.02 = €1.7m ÷ (€136m - €52m) (Based on the trailing twelve months to June 2020).

Thus, Biokarpet has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 8.6%.

Check out our latest analysis for Biokarpet

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Biokarpet's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The fact that Biokarpet is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 2.0% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Biokarpet is utilizing 55% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 38%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From Biokarpet's ROCE

Long story short, we're delighted to see that Biokarpet's reinvestment activities have paid off and the company is now profitable. And a remarkable 385% 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've found 1 warning sign for Biokarpet that we think 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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