Investors shouldn’t overlook BellRing Brands’ impressive returns on capital (NYSE: BRBR)
What trends should we look for if we are to identify stocks that can multiply in value over the long term? Among other things, we’ll want to see two things; first of all, a growth to return to on capital employed (ROCE) and on the other hand, an expansion of the quantity capital employed. Ultimately, this demonstrates that this is a company that reinvests its profits at increasing rates of return. And in light of this, the trends that we are observing at BellRing Brands’ (NYSE: BRBR) look very promising, so let’s take a look.
What is Return on Employee Capital (ROCE)?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. Analysts use this formula to calculate it for BellRing brands:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.46 = US $ 203 million ÷ (US $ 697 million – US $ 251 million) (Based on the last twelve months up to September 2021).
So, BellRing Brands has a ROCE of 46%. This is a fantastic return and not only that, it exceeds the 20% average earned by companies in a similar industry.
See our latest review for BellRing brands
In the graph above, we’ve measured BellRing Brands past ROCE versus past performance, but arguably the future is more important. If you want, you can view analyst forecasts covering the BellRing brands here for free.
The ROCE trend
BellRing Brands’ ROCE growth is quite impressive. Looking at the data, it can be seen that although the capital employed in the company has remained relatively stable, the ROCE generated has increased by 150% over the past four years. It is therefore likely that the company will now benefit fully from its past investments, since the capital employed has not changed much. On this front, things are looking good, so it’s worth exploring what management has said about growth plans for the future.
For the record, there was a noticeable increase in the company’s current liabilities over the period, so we attribute some of the ROCE growth to that. Indeed, this means that suppliers or short-term creditors now finance 36% of the activity, more than four years ago. It’s worth keeping an eye on this, because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.
The key to take away
As noted above, BellRing Brands appears to become more efficient at generating returns as capital employed has remained stable but earnings (before interest and taxes) are on the rise. And investors seem to expect more of that in the future, as the stock has rewarded shareholders with a 9.2% return over the past year. So, given that the stock has proven to have some promising trends, it’s worth digging deeper into the company to see if these trends are likely to persist.
If you want to know some of the risks facing the BellRing brands that we have found 4 warning signs (1 cannot be ignored!) Which you should be aware of before investing here.
If you’d like to see other companies driving high returns, check out our free List of high yielding companies with strong balance sheets here.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.