Stock Analysis

Bit Digital (NASDAQ:BTBT) Is Experiencing Growth In Returns On Capital

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What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Speaking of which, we noticed some great changes in Bit Digital's (NASDAQ:BTBT) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Bit Digital:

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

0.075 = US$13m ÷ (US$180m - US$5.0m) (Based on the trailing twelve months to December 2021).

Thus, Bit Digital has an ROCE of 7.5%. On its own, that's a low figure but it's around the 9.3% average generated by the Software industry.

See our latest analysis for Bit Digital

NasdaqCM:BTBT Return on Capital Employed April 21st 2022

In the above chart we have measured Bit Digital'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 Bit Digital.

What Can We Tell From Bit Digital's ROCE Trend?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.5%. Basically the business is earning more per dollar of capital invested and in addition to that, 1,883% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Bit Digital's ROCE

All in all, it's terrific to see that Bit Digital is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 67% over the last three years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing: We've identified 4 warning signs with Bit Digital (at least 2 which shouldn't be ignored) , and understanding these would certainly be useful.

While Bit Digital may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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Find out whether Bit Digital is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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