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

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at Burger Fuel Group (NZSE:BFG) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Burger Fuel Group, this is the formula:

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

0.064 = NZ$1.8m ÷ (NZ$33m - NZ$4.1m) (Based on the trailing twelve months to September 2024).

Therefore, Burger Fuel Group has an ROCE of 6.4%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 9.3%.

Check out our latest analysis for Burger Fuel Group

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Burger Fuel Group has performed in the past in other metrics, you can view this free graph of Burger Fuel Group's past earnings, revenue and cash flow.

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

Burger Fuel Group has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 48%. The company is now earning NZ$0.06 per dollar of capital employed. In regards to capital employed, Burger Fuel Group appears to been achieving more with less, since the business is using 30% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Key Takeaway

In a nutshell, we're pleased to see that Burger Fuel Group has been able to generate higher returns from less capital. Given the stock has declined 30% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 1 warning sign for Burger Fuel Group you'll probably want to know about.

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.