Returns On Capital At A.G. BARR (LON:BAG) Have Stalled
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. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of A.G. BARR (LON:BAG) looks decent, right now, so lets see what the trend of returns can tell us.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for A.G. BARR, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = UK£46m ÷ (UK£403m - UK£94m) (Based on the trailing twelve months to July 2023).
Therefore, A.G. BARR has an ROCE of 15%. By itself that's a normal return on capital and it's in line with the industry's average returns of 15%.
Check out our latest analysis for A.G. BARR
Above you can see how the current ROCE for A.G. BARR compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering A.G. BARR here for free.
So How Is A.G. BARR's ROCE Trending?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 31% more capital into its operations. 15% is a pretty standard return, and it provides some comfort knowing that A.G. BARR has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
The Bottom Line On A.G. BARR's ROCE
The main thing to remember is that A.G. BARR has proven its ability to continually reinvest at respectable rates of return. However, despite the favorable fundamentals, the stock has fallen 21% over the last five years, so there might be an opportunity here for astute investors. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.
If you'd like to know about the risks facing A.G. BARR, we've discovered 1 warning sign that you should be aware of.
While A.G. BARR isn't earning the highest return, check out this free list of companies that are 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.
