Is There More Growth In Store For Burger Fuel Group's (NZSE:BFG) Returns On Capital?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Burger Fuel Group (NZSE:BFG) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Burger Fuel Group:

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

0.0021 = NZ$87k ÷ (NZ$46m - NZ$4.4m) (Based on the trailing twelve months to September 2020).

Therefore, Burger Fuel Group has an ROCE of 0.2%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 7.4%.

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 want to delve into the historical earnings, revenue and cash flow of Burger Fuel Group, check out these free graphs here.

So How Is Burger Fuel Group's ROCE Trending?

We're delighted to see that Burger Fuel Group is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 0.2% which is a sight for sore eyes. Not only that, but the company is utilizing 207% more capital than before, but that's to be expected from a company trying to break into profitability. 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.

Our Take On Burger Fuel Group's ROCE

Long story short, we're delighted to see that Burger Fuel Group's reinvestment activities have paid off and the company is now profitable. Although the company may be facing some issues elsewhere since the stock has plunged 82% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

Like most companies, Burger Fuel Group does come with some risks, and we've found 3 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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