We Like These Underlying Return On Capital Trends At BMT (KOSDAQ:086670)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, BMT (KOSDAQ:086670) looks quite promising in regards to its trends of return on capital.

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 BMT, this is the formula:

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

0.071 = ₩6.7b ÷ (₩148b - ₩53b) (Based on the trailing twelve months to December 2020).

Thus, BMT has an ROCE of 7.1%. On its own that's a low return, but compared to the average of 5.3% generated by the Machinery industry, it's much better.

Check out our latest analysis for BMT

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

So How Is BMT's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 7.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 54% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

All in all, it's terrific to see that BMT is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 242% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 5 warning signs with BMT (at least 2 which shouldn't be ignored) , and understanding these would certainly be useful.

While BMT 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. 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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