Under The Bonnet, Brookfield Infrastructure's (NYSE:BIPC) Returns Look Impressive

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Brookfield Infrastructure (NYSE:BIPC) we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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 Brookfield Infrastructure:

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

0.24 = US$1.1b ÷ (US$11b - US$6.7b) (Based on the trailing twelve months to March 2022).

Thus, Brookfield Infrastructure has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 5.3% earned by companies in a similar industry.

Check out our latest analysis for Brookfield Infrastructure

Historical performance is a great place to start when researching a stock so above you can see the gauge for Brookfield Infrastructure's ROCE against it's prior returns. If you'd like to look at how Brookfield Infrastructure has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Brookfield Infrastructure Tell Us?

We're pretty happy with how the ROCE has been trending at Brookfield Infrastructure. The figures show that over the last four years, returns on capital have grown by 160%. The company is now earning US$0.2 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 50% less than it was four years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 59% of the business, which is more than it was four years ago. And with current liabilities at those levels, that's pretty high.

What We Can Learn From Brookfield Infrastructure's ROCE

In summary, it's great to see that Brookfield Infrastructure has been able to turn things around and earn higher returns on lower amounts of capital. And with a respectable 8.3% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Brookfield Infrastructure does come with some risks though, we found 4 warning signs in our investment analysis, and 3 of those are concerning...

Brookfield Infrastructure is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.