Under The Bonnet, BE Group's (STO:BEGR) Returns Look Impressive

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in BE Group's (STO:BEGR) returns on capital, so let's have a look.

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 BE Group is:

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

0.30 = kr668m ÷ (kr3.6b - kr1.3b) (Based on the trailing twelve months to March 2022).

So, BE Group has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 16%.

View our latest analysis for BE Group

In the above chart we have measured BE Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For BE Group Tell Us?

BE Group is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 30%. 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 67%. So we're very much inspired by what we're seeing at BE Group thanks to its ability to profitably reinvest capital.

What We Can Learn From BE Group's ROCE

To sum it up, BE Group has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 53% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One final note, you should learn about the 4 warning signs we've spotted with BE Group (including 2 which don't sit too well with us) .

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.