Bergman & Beving (STO:BERG B) Hasn't Managed To Accelerate Its Returns

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. However, after investigating Bergman & Beving (STO:BERG B), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. Analysts use this formula to calculate it for Bergman & Beving:

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

0.073 = kr352m ÷ (kr6.2b - kr1.4b) (Based on the trailing twelve months to September 2024).

So, Bergman & Beving has an ROCE of 7.3%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 13%.

View our latest analysis for Bergman & Beving

In the above chart we have measured Bergman & Beving's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Bergman & Beving for free.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Bergman & Beving in recent years. The company has employed 50% more capital in the last five years, and the returns on that capital have remained stable at 7.3%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Bergman & Beving's ROCE

In conclusion, Bergman & Beving has been investing more capital into the business, but returns on that capital haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 310% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One more thing, we've spotted 1 warning sign facing Bergman & Beving that you might find interesting.

While Bergman & Beving 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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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.