Carbochim (BVB:CBC) Might Have The Makings Of A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Carbochim (BVB:CBC) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Carbochim, this is the formula:

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

0.014 = RON1.2m ÷ (RON107m - RON16m) (Based on the trailing twelve months to June 2022).

Therefore, Carbochim has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 5.6%.

Check out the opportunities and risks within the RO Machinery industry.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Carbochim's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Carbochim, check out these free graphs here.

So How Is Carbochim's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 1.4%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 29%. So we're very much inspired by what we're seeing at Carbochim thanks to its ability to profitably reinvest capital.

The Bottom Line On Carbochim's ROCE

To sum it up, Carbochim has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 321% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Carbochim (of which 2 are significant!) that you should know about.

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.