Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Bumitama Agri (SGX:P8Z) looks great, so lets see what the trend can tell us.

Understanding 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. To calculate this metric for Bumitama Agri, this is the formula:

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

0.29 = Rp5.4t ÷ (Rp20t - Rp1.7t) (Based on the trailing twelve months to June 2022).

Thus, Bumitama Agri has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Food industry average of 11%.

See our latest analysis for Bumitama Agri

In the above chart we have measured Bumitama Agri's 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 report for Bumitama Agri.

The Trend Of ROCE

The trends we've noticed at Bumitama Agri are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 29%. Basically the business is earning more per dollar of capital invested and in addition to that, 43% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Bumitama Agri's ROCE

In summary, it's great to see that Bumitama Agri can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

Bumitama Agri does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.