Investors Met With Slowing Returns on Capital At B.O.S. Better Online Solutions (NASDAQ:BOSC)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after investigating B.O.S. Better Online Solutions (NASDAQ:BOSC), we don't think it's current trends fit the mold of a multi-bagger.

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. The formula for this calculation on B.O.S. Better Online Solutions is:

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

0.052 = US$831k ÷ (US$24m - US$8.2m) (Based on the trailing twelve months to September 2021).

So, B.O.S. Better Online Solutions has an ROCE of 5.2%. On its own, that's a low figure but it's around the 6.3% average generated by the Communications industry.

Check out our latest analysis for B.O.S. Better Online Solutions

Historical performance is a great place to start when researching a stock so above you can see the gauge for B.O.S. Better Online Solutions' ROCE against it's prior returns. If you're interested in investigating B.O.S. Better Online Solutions' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The returns on capital haven't changed much for B.O.S. Better Online Solutions in recent years. The company has employed 45% more capital in the last five years, and the returns on that capital have remained stable at 5.2%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In summary, B.O.S. Better Online Solutions has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 27% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a final note, we found 2 warning signs for B.O.S. Better Online Solutions (1 is a bit concerning) you should be aware of.

While B.O.S. Better Online 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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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.