Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Although, when we looked at Big Technologies (LON:BIG), it didn’t seem to tick all of these boxes.

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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 Big Technologies, this is the formula:

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

0.09 = UK£12m ÷ (UK£144m – UK£8.5m) (Based on the trailing twelve months to June 2024).

So, Big Technologies has an ROCE of 9.0%. On its own, that’s a low figure but it’s around the 11% average generated by the Electronic industry.

See our latest analysis for Big Technologies

Above you can see how the current ROCE for Big Technologies 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 Big Technologies for free.

When we looked at the ROCE trend at Big Technologies, we didn’t gain much confidence. Around five years ago the returns on capital were 12%, but since then they’ve fallen to 9.0%. Meanwhile, the business is utilizing more capital but this hasn’t moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It’s worth keeping an eye on the company’s earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Big Technologies has done well to pay down its current liabilities to 5.9% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it’s own money, you could argue this has made the business less efficient at generating ROCE.

Bringing it all together, while we’re somewhat encouraged by Big Technologies’ reinvestment in its own business, we’re aware that returns are shrinking. Moreover, since the stock has crumbled 75% over the last three years, it appears investors are expecting the worst. Therefore based on the analysis done in this article, we don’t think Big Technologies has the makings of a multi-bagger.