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Here's What To Make Of Brisbane Broncos' (ASX:BBL) Decelerating Rates Of Return

·2-min read

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. However, after briefly looking over the numbers, we don't think Brisbane Broncos (ASX:BBL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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. Analysts use this formula to calculate it for Brisbane Broncos:

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

0.11 = AU$4.2m ÷ (AU$53m - AU$13m) (Based on the trailing twelve months to December 2021).

So, Brisbane Broncos has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 8.9% generated by the Entertainment industry.

View our latest analysis for Brisbane Broncos

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

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Brisbane Broncos, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Brisbane Broncos in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On Brisbane Broncos' ROCE

In a nutshell, Brisbane Broncos has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has gained an impressive 82% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

One final note, you should learn about the 2 warning signs we've spotted with Brisbane Broncos (including 1 which is potentially serious) .

While Brisbane Broncos isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.