Koninklijke Brill (AMS:BRILL) Might Have The Makings Of A Multi-Bagger
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Koninklijke Brill's (AMS:BRILL) returns on capital, so let's have a look.
Understanding 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. Analysts use this formula to calculate it for Koninklijke Brill:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = €5.3m ÷ (€58m - €25m) (Based on the trailing twelve months to June 2022).
Thus, Koninklijke Brill has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 12% it's much better.
View our latest analysis for Koninklijke Brill
Historical performance is a great place to start when researching a stock so above you can see the gauge for Koninklijke Brill's ROCE against it's prior returns. If you're interested in investigating Koninklijke Brill's past further, check out this free graph of past earnings, revenue and cash flow.
What Can We Tell From Koninklijke Brill's ROCE Trend?
Koninklijke Brill's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 28% 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.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 42% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.
The Bottom Line
To bring it all together, Koninklijke Brill has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 40% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
Like most companies, Koninklijke Brill does come with some risks, and we've found 2 warning signs that you should be aware of.
While Koninklijke Brill 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.
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