The Returns At B.A.G. Films and Media (NSE:BAGFILMS) Aren't Growing

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at B.A.G. Films and Media (NSE:BAGFILMS), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on B.A.G. Films and Media is:

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

0.061 = ₹152m ÷ (₹3.8b - ₹1.3b) (Based on the trailing twelve months to June 2024).

Therefore, B.A.G. Films and Media has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Media industry average of 10%.

View our latest analysis for B.A.G. Films and Media

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

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for B.A.G. Films and Media's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if B.A.G. Films and Media doesn't end up being a multi-bagger in a few years time.

The Bottom Line On B.A.G. Films and Media's ROCE

In a nutshell, B.A.G. Films and Media has been trudging along with the same returns from the same amount of capital over the last five years. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 646% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing: We've identified 3 warning signs with B.A.G. Films and Media (at least 1 which can't be ignored) , and understanding these would certainly be useful.

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.