Investors Met With Slowing Returns on Capital At BTS Group (STO:BTS B)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of BTS Group (STO:BTS B) looks decent, right now, so lets see what the trend of returns can tell us.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for BTS Group, this is the formula:

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

0.18 = kr303m ÷ (kr2.8b - kr1.0b) (Based on the trailing twelve months to December 2022).

Thus, BTS Group has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 20% generated by the Professional Services industry.

View our latest analysis for BTS Group

In the above chart we have measured BTS 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 Can We Tell From BTS Group's ROCE Trend?

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 18% and the business has deployed 95% more capital into its operations. 18% is a pretty standard return, and it provides some comfort knowing that BTS Group has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On BTS Group's ROCE

In the end, BTS Group has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 219% return over the last five years, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you'd like to know about the risks facing BTS Group, we've discovered 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.