Investors Will Want BATM Advanced Communications' (LON:BVC) Growth In ROCE To Persist

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in BATM Advanced Communications' (LON:BVC) returns on capital, so let's have a look.

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 BATM Advanced Communications is:

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

0.025 = US$3.1m ÷ (US$175m - US$51m) (Based on the trailing twelve months to December 2022).

Thus, BATM Advanced Communications has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Communications industry average of 10%.

See our latest analysis for BATM Advanced Communications

roce

In the above chart we have measured BATM Advanced Communications' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering BATM Advanced Communications here for free.

What Does the ROCE Trend For BATM Advanced Communications Tell Us?

BATM Advanced Communications has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 2.5% which is a sight for sore eyes. In addition to that, BATM Advanced Communications is employing 33% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line On BATM Advanced Communications' ROCE

To the delight of most shareholders, BATM Advanced Communications has now broken into profitability. Given the stock has declined 19% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

Like most companies, BATM Advanced Communications does come with some risks, and we've found 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.

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