The Return Trends At Beijer Electronics Group (STO:BELE) Look Promising

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Beijer Electronics Group (STO:BELE) and its trend of ROCE, we really liked 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 Beijer Electronics Group is:

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

0.11 = kr178m ÷ (kr2.4b - kr803m) (Based on the trailing twelve months to September 2022).

So, Beijer Electronics Group has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electronic industry average of 9.7%.

See our latest analysis for Beijer Electronics Group

In the above chart we have measured Beijer Electronics 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 Beijer Electronics Group's ROCE Trend?

Beijer Electronics Group has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 11% which is a sight for sore eyes. Not only that, but the company is utilizing 44% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 34% of its operations, which isn't ideal. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

What We Can Learn From Beijer Electronics Group's ROCE

Long story short, we're delighted to see that Beijer Electronics Group's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Beijer Electronics Group can keep these trends up, it could have a bright future ahead.

Beijer Electronics Group does have some risks though, and we've spotted 1 warning sign for Beijer Electronics Group that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.