Returns At Bravida Holding (STO:BRAV) Appear To Be Weighed Down

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. That's why when we briefly looked at Bravida Holding's (STO:BRAV) ROCE trend, we were pretty happy with what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Bravida Holding is:

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

0.15 = kr1.5b ÷ (kr25b - kr14b) (Based on the trailing twelve months to September 2024).

Thus, Bravida Holding has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 11% generated by the Commercial Services industry.

View our latest analysis for Bravida Holding

Above you can see how the current ROCE for Bravida Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Bravida Holding for free.

What Can We Tell From Bravida Holding's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 31% more capital in the last five years, and the returns on that capital have remained stable at 15%. 15% is a pretty standard return, and it provides some comfort knowing that Bravida Holding has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a separate but related note, it's important to know that Bravida Holding has a current liabilities to total assets ratio of 58%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Bravida Holding's ROCE

The main thing to remember is that Bravida Holding has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 7.4% over the last five years, we'd suspect the market is beginning to recognize these trends. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

If you're still interested in Bravida Holding it's worth checking out our FREE intrinsic value approximation for BRAV to see if it's trading at an attractive price in other respects.

While Bravida Holding 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.