Yahoo Finance We Like These Underlying Return On Capital Trends At Boom Logistics (ASX:BOL)
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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Boom Logistics (ASX:BOL) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Boom Logistics:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.059 = AU$8.6m ÷ (AU$216m - AU$71m) (Based on the trailing twelve months to December 2023).
Therefore, Boom Logistics has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 13%.
See our latest analysis for Boom Logistics
Historical performance is a great place to start when researching a stock so above you can see the gauge for Boom Logistics' ROCE against it's prior returns. If you'd like to look at how Boom Logistics has performed in the past in other metrics, you can view this free graph of Boom Logistics' past earnings, revenue and cash flow.
What Can We Tell From Boom Logistics' ROCE Trend?
Boom Logistics is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 1,064% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
The Bottom Line On Boom Logistics' ROCE
To bring it all together, Boom Logistics has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 13% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
One more thing, we've spotted 1 warning sign facing Boom Logistics that you might find interesting.
While Boom Logistics isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
