B3 Consulting Group (STO:B3) Is Achieving High Returns On Its Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. And in light of that, the trends we're seeing at B3 Consulting Group's (STO:B3) look very promising so lets take a look.

What Is 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. To calculate this metric for B3 Consulting Group, this is the formula:

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

0.43 = kr131m ÷ (kr591m - kr288m) (Based on the trailing twelve months to September 2022).

So, B3 Consulting Group has an ROCE of 43%. In absolute terms that's a great return and it's even better than the IT industry average of 19%.

Check out the opportunities and risks within the SE IT industry.

In the above chart we have measured B3 Consulting Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for B3 Consulting Group.

What Can We Tell From B3 Consulting Group's ROCE Trend?

B3 Consulting Group is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 43%. Basically the business is earning more per dollar of capital invested and in addition to that, 117% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a side note, B3 Consulting Group's current liabilities are still rather high at 49% of total assets. 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.

The Bottom Line On B3 Consulting Group's ROCE

All in all, it's terrific to see that B3 Consulting Group is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 169% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if B3 Consulting Group can keep these trends up, it could have a bright future ahead.

Like most companies, B3 Consulting Group does come with some risks, and we've found 2 warning signs that you should be aware of.

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.