Investors Will Want Burger Fuel Group's (NZSE:BFG) Growth In ROCE To Persist

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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)?

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 Burger Fuel Group, this is the formula:

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

0.024 = NZ$975k ÷ (NZ$46m - NZ$5.2m) (Based on the trailing twelve months to March 2021).

Therefore, Burger Fuel Group has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 5.6%.

Check out 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'd like to look at how Burger Fuel Group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Burger Fuel Group Tell Us?

The fact that Burger Fuel Group is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.4% on its capital. And unsurprisingly, like most companies trying to break into the black, Burger Fuel Group is utilizing 221% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Key Takeaway

To the delight of most shareholders, Burger Fuel Group has now broken into profitability. Although the company may be facing some issues elsewhere since the stock has plunged 79% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

On a final note, we've found 2 warning signs for Burger Fuel Group that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.
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