We Like These Underlying Trends At Byggma (OB:BMA)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 when we looked at Byggma (OB:BMA) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Byggma is:

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

0.098 = kr151m ÷ (kr2.0b - kr507m) (Based on the trailing twelve months to September 2020).

Thus, Byggma has an ROCE of 9.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 10%.

See our latest analysis for Byggma

Historical performance is a great place to start when researching a stock so above you can see the gauge for Byggma's ROCE against it's prior returns. If you'd like to look at how Byggma has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Byggma's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 9.8%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 39%. 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.

Our Take On Byggma's ROCE

All in all, it's terrific to see that Byggma is reaping the rewards from prior investments and is growing its capital base. And a remarkable 176% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Byggma can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 2 warning signs with Byggma and understanding these should be part of your investment process.

While Byggma 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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