Stock Analysis

Burger Fuel Group (NZSE:BFG) Shareholders Will Want The ROCE Trajectory To Continue

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NZSE:BFG
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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Burger Fuel Group's (NZSE:BFG) returns on capital, so let's have a look.

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. 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)

0.039 = NZ$1.5m ÷ (NZ$43m - NZ$3.8m) (Based on the trailing twelve months to September 2021).

Therefore, Burger Fuel Group has an ROCE of 3.9%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 6.0%.

See our latest analysis for Burger Fuel Group

roce
NZSE:BFG Return on Capital Employed January 31st 2022

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're interested in investigating Burger Fuel Group's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Burger Fuel Group has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 3.9% on its capital. And unsurprisingly, like most companies trying to break into the black, Burger Fuel Group is utilizing 207% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Burger Fuel Group's ROCE

Overall, Burger Fuel Group gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Given the stock has declined 69% 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.

If you want to continue researching Burger Fuel Group, you might be interested to know about the 2 warning signs that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Burger Fuel Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About NZSE:BFG

Burger Fuel Group

Burger Fuel Group Limited operates as a franchisor of gourmet burger and chicken restaurants in New Zealand, Australia, the United States, and the Middle East.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation2
Future Growth0
Past Performance1
Financial Health5
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Excellent balance sheet and slightly overvalued.