Investors have encountered a slowdown in capital returns at Bufab (STO: BUFAB)

Did you know that there are financial metrics that can provide clues to a potential multi-bagger? Among other things, we will want to see two things; first, growth to return to on capital employed (ROCE) and on the other hand, an expansion of the quantity capital employed. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. With this in mind, the ROCE of bufab (STO:BUFAB) looks decent right now, so let’s see what the trend in returns can tell us.

Return on capital employed (ROCE): what is it?

For those unaware, ROCE is a measure of a company’s annual pre-tax profit (yield), relative to the capital employed in the business. To calculate this metric for Bufab, here is the formula:

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

0.13 = kr607m ÷ (kr6.0b – kr1.4b) (Based on the last twelve months to September 2021).

Thereby, Bufab has a ROCE of 13%. In absolute terms, that’s a pretty normal return, and it’s somewhat close to the commercial distributor industry average of 16%.

See our latest analysis for Bufab

OM:BUFAB Return on Capital Employed January 20, 2022

In the chart above, we measured Bufab’s past ROCE against its past performance, but the future is arguably more important. If you want to see what analysts are predicting for the future, you should check out our free report for Bufab.

What is the return trend?

Although current capital returns are decent, they haven’t changed much. The company has consistently gained 13% over the past five years and the capital employed within the company has increased by 115% over this period. 13% is a pretty standard return, and it’s reassuring knowing that Bufab has always earned that amount. Stable returns in this stage can be unexciting, but if they can be sustained over the long term, they often offer handsome rewards to shareholders.

Our view on Bufab’s ROCE

Ultimately, Bufab has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable return of 408% for those who have held over the past five years. So while the stock may be more “expensive” than it was before, we believe the strong fundamentals warrant this stock for further research.

Bufab does have risks though, and we spotted 1 warning sign for Bufab that might interest you.

Although Bufab does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. look at this free list here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

About Andrew Estofan

Check Also

Ratings remain stable | The star

PETALING JAYA: While government debt levels are expected to rise in the near term, this …