Burger Fuel Group (NZSE:BFG) Is Doing The Right Things To Multiply Its Share Price

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Burger Fuel Group (NZSE:BFG) and its trend of ROCE, we really liked what we saw.

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 Burger Fuel Group is:

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

0.046 = NZ$1.6m ÷ (NZ$39m - NZ$4.9m) (Based on the trailing twelve months to September 2023).

Thus, Burger Fuel Group has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 6.4%.

See our latest analysis for Burger Fuel Group

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

What Can We Tell From Burger Fuel Group's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 4.6%. The amount of capital employed has increased too, by 240%. 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 12%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From Burger Fuel Group's ROCE

All in all, it's terrific to see that Burger Fuel Group is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 57% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing Burger Fuel Group, we've discovered 2 warning signs that you should be aware of.

While Burger Fuel Group 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.