The Return Trends At Borgosesia (BIT:BO) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So on that note, Borgosesia (BIT:BO) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Borgosesia is:

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

0.049 = €3.9m ÷ (€109m - €29m) (Based on the trailing twelve months to June 2021).

Thus, Borgosesia has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Industrials industry average of 6.9%.

See our latest analysis for Borgosesia

Above you can see how the current ROCE for Borgosesia 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 Borgosesia here for free.

The Trend Of ROCE

Borgosesia has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 4.9% on its capital. Not only that, but the company is utilizing 119% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 27%, 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.

Our Take On Borgosesia's ROCE

In summary, it's great to see that Borgosesia has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 143% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Borgosesia can keep these trends up, it could have a bright future ahead.

On a final note, we found 5 warning signs for Borgosesia (2 don't sit too well with us) you should be aware of.

While Borgosesia isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.