Returns On Capital Are Showing Encouraging Signs At Bulgartabac Holding AD (BUL:BTH)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Bulgartabac Holding AD's (BUL:BTH) returns on capital, so let's have a look.

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What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Bulgartabac Holding AD is:

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

0.0076 = лв4.0m ÷ (лв777m - лв253m) (Based on the trailing twelve months to December 2023).

So, Bulgartabac Holding AD has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Tobacco industry average of 18%.

See our latest analysis for Bulgartabac Holding AD

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bulgartabac Holding AD's ROCE against it's prior returns. If you're interested in investigating Bulgartabac Holding AD's past further, check out this free graph covering Bulgartabac Holding AD's past earnings, revenue and cash flow.

The Trend Of ROCE

Shareholders will be relieved that Bulgartabac Holding AD has broken into profitability. The company now earns 0.8% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Bulgartabac Holding AD has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In Conclusion...

In summary, we're delighted to see that Bulgartabac Holding AD has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Given the stock has declined 40% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about Bulgartabac Holding AD, we've spotted 4 warning signs, and 3 of them are significant.

While Bulgartabac Holding AD 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.

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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.