If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. However, after investigating Beeks Financial Cloud Group (LON:BKS), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Beeks Financial Cloud Group is:

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

0.0081 = UK￡320k ÷ (UK￡47m - UK￡7.6m) (Based on the trailing twelve months to December 2023).

Therefore, Beeks Financial Cloud Group has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the IT industry average of 16%.

See our latest analysis for Beeks Financial Cloud Group

In the above chart we have measured Beeks Financial Cloud Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Beeks Financial Cloud Group .

The Trend Of ROCE

In terms of Beeks Financial Cloud Group's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 26% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

While returns have fallen for Beeks Financial Cloud Group in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And long term investors must be optimistic going forward because the stock has returned a huge 197% to shareholders in the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you want to continue researching Beeks Financial Cloud Group, you might be interested to know about the 2 warning signs that our analysis has discovered.