Returns On Capital At Brikor (JSE:BIK) Paint A Concerning Picture

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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 Brikor (JSE:BIK), we don't think it's current trends fit the mold of a multi-bagger.

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What Is 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. The formula for this calculation on Brikor is:

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

0.028 = R5.7m ÷ (R302m - R97m) (Based on the trailing twelve months to February 2025).

Thus, Brikor has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 35%.

View our latest analysis for Brikor

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

What Can We Tell From Brikor's ROCE Trend?

On the surface, the trend of ROCE at Brikor doesn't inspire confidence. To be more specific, ROCE has fallen from 5.8% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On Brikor's ROCE

To conclude, we've found that Brikor is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 113% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Brikor does have some risks though, and we've spotted 3 warning signs for Brikor that you might be interested in.

While Brikor 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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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.