BayCurrent Consulting (TSE:6532) Could Become A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of BayCurrent Consulting (TSE:6532) looks great, so lets see what the trend can tell us.

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 BayCurrent Consulting is:

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

0.42 = JP¥34b ÷ (JP¥100b - JP¥18b) (Based on the trailing twelve months to February 2024).

Therefore, BayCurrent Consulting has an ROCE of 42%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 15%.

Check out our latest analysis for BayCurrent Consulting

Above you can see how the current ROCE for BayCurrent Consulting compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for BayCurrent Consulting .

What Does the ROCE Trend For BayCurrent Consulting Tell Us?

BayCurrent Consulting is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 42%. The amount of capital employed has increased too, by 328%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From BayCurrent Consulting's ROCE

In summary, it's great to see that BayCurrent Consulting can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if BayCurrent Consulting can keep these trends up, it could have a bright future ahead.

BayCurrent Consulting does have some risks though, and we've spotted 1 warning sign for BayCurrent Consulting that you might be interested in.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.