Returns At B.O.S. Better Online Solutions (NASDAQ:BOSC) Appear To Be Weighed Down
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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at B.O.S. Better Online Solutions (NASDAQ:BOSC) and its ROCE trend, we weren't exactly thrilled.
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. To calculate this metric for B.O.S. Better Online Solutions, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.052 = US$831k ÷ (US$24m - US$8.2m) (Based on the trailing twelve months to September 2021).
Therefore, B.O.S. Better Online Solutions has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Communications industry average of 6.6%.
Check out our latest analysis for B.O.S. Better Online Solutions
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating B.O.S. Better Online Solutions' past further, check out this free graph of past earnings, revenue and cash flow.
So How Is B.O.S. Better Online Solutions' ROCE Trending?
The returns on capital haven't changed much for B.O.S. Better Online Solutions in recent years. The company has employed 45% more capital in the last five years, and the returns on that capital have remained stable at 5.2%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
Our Take On B.O.S. Better Online Solutions' ROCE
As we've seen above, B.O.S. Better Online Solutions' returns on capital haven't increased but it is reinvesting in the business. Unsurprisingly, the stock has only gained 1.3% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
If you want to know some of the risks facing B.O.S. Better Online Solutions we've found 3 warning signs (1 is significant!) that you should be aware of before investing here.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
