Returns At Burger Fuel Group (NZSE:BFG) Are On The Way Up

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. The formula for this calculation on Burger Fuel Group is:

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

0.0021 = 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%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 5.5%.

View 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 past earnings, revenue and cash flow.

So How Is Burger Fuel Group's ROCE Trending?

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 0.2% on its capital. 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.

The Bottom Line

In summary, it's great to see that Burger Fuel Group has managed to break into profitability and is continuing to reinvest in its business. And since the stock has dived 79% over the last five years, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

Burger Fuel Group does have some risks though, and we've spotted 3 warning signs for Burger Fuel Group that you might be interested in.

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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