Is B3 Consulting Group (STO:B3) Likely To Turn Things Around?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating B3 Consulting Group (STO:B3), we don't think it's current trends fit the mold of a multi-bagger.

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 B3 Consulting Group is:

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

0.19 = kr46m ÷ (kr524m - kr287m) (Based on the trailing twelve months to September 2020).

Thus, B3 Consulting Group has an ROCE of 19%. That's a pretty standard return and it's in line with the industry average of 19%.

See our latest analysis for B3 Consulting Group

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?

When we looked at the ROCE trend at B3 Consulting Group, we didn't gain much confidence. To be more specific, ROCE has fallen from 50% over the last five years. However it looks like B3 Consulting Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a separate but related note, it's important to know that B3 Consulting Group has a current liabilities to total assets ratio of 55%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

To conclude, we've found that B3 Consulting Group is reinvesting in the business, but returns have been falling. And in the last three years, the stock has given away 39% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Like most companies, B3 Consulting Group does come with some risks, and we've found 3 warning signs that you should be aware of.

While B3 Consulting Group 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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