Returns On Capital At Bidvest Group (JSE:BVT) Have Hit The Brakes

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, the ROCE of Bidvest Group (JSE:BVT) looks decent, right now, so lets see what the trend of returns can tell us.

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 Bidvest Group:

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

0.16 = R12b ÷ (R113b - R39b) (Based on the trailing twelve months to June 2024).

Thus, Bidvest Group has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Industrials industry average of 9.5% it's much better.

See our latest analysis for Bidvest Group

Above you can see how the current ROCE for Bidvest Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Bidvest Group for free.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 109% more capital into its operations. 16% is a pretty standard return, and it provides some comfort knowing that Bidvest Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Bidvest Group's ROCE

The main thing to remember is that Bidvest Group has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 37% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Bidvest Group is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Bidvest Group does have some risks though, and we've spotted 2 warning signs for Bidvest Group that you might be interested in.

While Bidvest Group 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.