Why We Like The Returns At Bon Natural Life (NASDAQ:BON)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Bon Natural Life (NASDAQ:BON) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What Is It?

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 Bon Natural Life, this is the formula:

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

0.21 = US$6.5m ÷ (US$37m - US$6.6m) (Based on the trailing twelve months to September 2022).

Thus, Bon Natural Life has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

See our latest analysis for Bon Natural Life

In the above chart we have measured Bon Natural Life'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.

SWOT Analysis for Bon Natural Life

How Are Returns Trending?

Bon Natural Life is displaying some positive trends. The data shows that returns on capital have increased substantially over the last four years to 21%. The amount of capital employed has increased too, by 288%. So we're very much inspired by what we're seeing at Bon Natural Life thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 18%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Key Takeaway

To sum it up, Bon Natural Life has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Although the company may be facing some issues elsewhere since the stock has plunged 83% in the last year. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

On a final note, we found 4 warning signs for Bon Natural Life (2 are significant) 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.