Returns On Capital At B.O.S. Better Online Solutions (NASDAQ:BOSC) Have Hit The Brakes
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating B.O.S. Better Online Solutions (NASDAQ:BOSC), we don't think it's current trends fit the mold of a multi-bagger.
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. 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)
0.068 = US$1.3m ÷ (US$29m - US$10m) (Based on the trailing twelve months to September 2022).
So, B.O.S. Better Online Solutions has an ROCE of 6.8%. Ultimately, that's a low return and it under-performs the Communications industry average of 8.7%.
See 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 want to delve into the historical earnings, revenue and cash flow of B.O.S. Better Online Solutions, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
There are better returns on capital out there than what we're seeing at B.O.S. Better Online Solutions. Over the past five years, ROCE has remained relatively flat at around 6.8% and the business has deployed 52% more capital into its operations. 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.
In Conclusion...
In conclusion, B.O.S. Better Online Solutions has been investing more capital into the business, but returns on that capital haven't increased. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. 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.
B.O.S. Better Online Solutions does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...
While B.O.S. Better Online Solutions 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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