Yahoo Finance BATM Advanced Communications (LON:BVC) Might Be Having Difficulty Using Its Capital Effectively
There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Although, when we looked at BATM Advanced Communications (LON:BVC), it didn't seem to tick all of these boxes.
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 BATM Advanced Communications is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.013 = US$1.6m ÷ (US$170m - US$43m) (Based on the trailing twelve months to June 2024).
So, BATM Advanced Communications has an ROCE of 1.3%. Ultimately, that's a low return and it under-performs the Communications industry average of 15%.
View our latest analysis for BATM Advanced Communications
Above you can see how the current ROCE for BATM Advanced Communications 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 BATM Advanced Communications for free.
What Does the ROCE Trend For BATM Advanced Communications Tell Us?
On the surface, the trend of ROCE at BATM Advanced Communications doesn't inspire confidence. To be more specific, ROCE has fallen from 2.2% over the last five years. However it looks like BATM Advanced Communications might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
Our Take On BATM Advanced Communications' ROCE
In summary, BATM Advanced Communications is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 52% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
One more thing to note, we've identified 1 warning sign with BATM Advanced Communications and understanding it should be part of your investment process.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
