Returns On Capital - An Important Metric For Bang Overseas (NSE:BANG)

There are a few key trends to look for if we want to identify the next multi-bagger. 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 Bang Overseas (NSE:BANG) so let's look a bit deeper.

Understanding 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. To calculate this metric for Bang Overseas, this is the formula:

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

0.027 = ₹26m ÷ (₹1.5b - ₹551m) (Based on the trailing twelve months to June 2020).

Therefore, Bang Overseas has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 8.6%.

Check out our latest analysis for Bang Overseas

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 Bang Overseas' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Bang Overseas' ROCE Trending?

Bang Overseas has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 2.7% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Bang Overseas is utilizing 40% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 36%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Bang Overseas has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

To the delight of most shareholders, Bang Overseas has now broken into profitability. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 56% return over the last five years. 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 final note, you should learn about the 3 warning signs we've spotted with Bang Overseas (including 1 which is is concerning) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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