Bioceres Crop Solutions (NYSEMKT:BIOX) Shareholders Will Want The ROCE Trajectory To Continue

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Bioceres Crop Solutions (NYSEMKT:BIOX) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Bioceres Crop Solutions, this is the formula:

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

0.18 = US$32m ÷ (US$346m - US$165m) (Based on the trailing twelve months to December 2020).

Thus, Bioceres Crop Solutions has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 8.4% generated by the Food industry.

View our latest analysis for Bioceres Crop Solutions

Above you can see how the current ROCE for Bioceres Crop Solutions compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Bioceres Crop Solutions.

So How Is Bioceres Crop Solutions' ROCE Trending?

Bioceres Crop Solutions has not disappointed with their ROCE growth. The figures show that over the last four years, ROCE has grown 2,837% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

On a separate but related note, it's important to know that Bioceres Crop Solutions has a current liabilities to total assets ratio of 48%, 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

As discussed above, Bioceres Crop Solutions appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a staggering 117% to shareholders over the last year, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we've found 2 warning signs for Bioceres Crop Solutions that we think you should be aware of.

While Bioceres Crop Solutions 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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