If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. In light of that, when we looked at Black Hills (NYSE:BKH) and its ROCE trend, we weren't exactly thrilled.
What Is 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. To calculate this metric for Black Hills, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.056 = US$468m ÷ (US$9.6b - US$1.2b) (Based on the trailing twelve months to December 2023).
So, Black Hills has an ROCE of 5.6%. On its own, that's a low figure but it's around the 4.9% average generated by the Integrated Utilities industry.
In the above chart we have measured Black Hills' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Black Hills .
How Are Returns Trending?
The returns on capital haven't changed much for Black Hills in recent years. The company has employed 34% more capital in the last five years, and the returns on that capital have remained stable at 5.6%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
What We Can Learn From Black Hills' ROCE
In conclusion, Black Hills has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly then, the total return to shareholders over the last five years has been flat. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
Black Hills does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...
While Black Hills may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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.
次のマルチバッグの次を探す場合、注目すべき重要なトレンドがいくつかあります。まず、増加している資本利回り(ROCE)が証明された企業を見たいと思います。そして、資本利用額の拡大です。これを見ると、健全なビジネスモデルを持つ企業であり、収益性の高い再投資機会がたくさんあるということが典型的です。それについては、MGM China HoldingsのROCEに明らかな変化があることに気づいたので、見てみましょう。資本利回り (ROCE)とは何ですか?わからない方には、ROCEは企業が事業に使用する資本から、税引き前利益をどれだけ生成できるかを測定します。アナリストは以下の式を使用して、Bumi Armada BerhadのROCEを計算します。「ROCE = 利息や税金を除いた利益 (EBIT) ÷ (総資産 - 流動負債)」。したがって、ホームデポのROCEは40%です。それは素晴らしいリターンです。さらに、同じ業種の企業が獲得した13%の平均を上回っています。NYSE:HD Return on Capital Employed 2024年4月10日資本雇用のビジネス全セクターにおいて、単純に言えば、これらのタイプのビジネスは複利計算の機械であり、収益を常により高い利回りで再投資しています。その見地から、Black Hills(NYSE:BKH)とそのROCEトレンドを見たとき、私たちはあまり興奮しませんでした。