B&M European Value Retail (LON: BME) knows how to allocate capital efficiently
If we are to find a title that could multiply over the long term, what are the underlying trends to look for? Generally, we will want to notice a growing trend return on capital employed (ROCE) and at the same time, a based capital employed. Put simply, these types of businesses are dialing machines, which means they continually reinvest their profits at ever higher rates of return. With this in mind, the ROCE of B&M European Value Retail (LON: BME) looks great, so let’s see what the trend can tell us.
Understanding Return on Capital Employed (ROCE)
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. Analysts use this formula to calculate it for B&M European Value Retail:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.23 = £ 607 million (£ 3.4 billion – £ 731 million) (Based on the last twelve months up to March 2021).
So, B&M European Value Retail has a ROCE of 23%. This in itself is a very good return and it is comparable to the returns obtained by companies in a similar industry.
Check out our latest analysis for B&M European Value Retail
In the chart above, we’ve measured B&M European Value Retail’s past ROCE against its past performance, but the future is arguably more important. If you’d like to see what analysts are forecasting for the future, you should check out our free report for B&M European Value Retail.
What can we say about the ROCE trend of B&M European Value Retail?
Investors would be delighted with what is happening at B&M European Value Retail. Data shows that returns on capital have increased dramatically over the past five years to reach 23%. The company actually makes more money per dollar of capital employed, and it should be noted that the amount of capital has also increased, by 94%. This may indicate that there are many opportunities to invest capital in-house and at ever higher rates, a common combination among multi-baggers.
B&M European Value Retail ROCE result
In summary, it’s great to see that B&M European Value Retail can increase returns by systematically reinvesting capital at increasing rates of return, as these are some of the key ingredients in these highly sought-after multi-baggers. Given that the stock has returned 164% to shareholders over the past five years, it looks like investors are recognizing these changes. Therefore, we believe it would be worth checking out whether these trends will continue.
If you want to know more about B&M European Value Retail, we have spotted 3 warning signs, and 1 of them is a bit rude.
If you want to look for other stocks that have generated high returns, check out this free list of stocks with strong balance sheets that also generate high returns on equity.
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