Returns On Capital At Bell Equipment (JSE:BEL) Have Stalled

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Bell Equipment (JSE:BEL), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

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 Bell Equipment is:

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

0.07 = R302m ÷ (R6.7b - R2.4b) (Based on the trailing twelve months to June 2021).

Therefore, Bell Equipment has an ROCE of 7.0%. Ultimately, that's a low return and it under-performs the Machinery industry average of 8.8%.

Check out our latest analysis for Bell Equipment

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Bell Equipment, check out these free graphs here.

What Does the ROCE Trend For Bell Equipment Tell Us?

There are better returns on capital out there than what we're seeing at Bell Equipment. The company has employed 34% more capital in the last five years, and the returns on that capital have remained stable at 7.0%. 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.

What We Can Learn From Bell Equipment's ROCE

Long story short, while Bell Equipment has been reinvesting its capital, the returns that it's generating haven't increased. And with the stock having returned a mere 40% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Bell Equipment (including 1 which is a bit unpleasant) .

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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.

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