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Is Beasley Broadcast Group, Inc. (NASDAQ:BBGI) Investing Your Capital Efficiently?

Simply Wall St

Today we are going to look at Beasley Broadcast Group, Inc. (NASDAQ:BBGI) to see whether it might be an attractive investment prospect. In particular, we'll consider its Return On Capital Employed (ROCE), as that can give us insight into how profitably the company is able to employ capital in its business.

First up, we'll look at what ROCE is and how we calculate it. Next, we'll compare it to others in its industry. Finally, we'll look at how its current liabilities affect its ROCE.

Understanding Return On Capital Employed (ROCE)

ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. In general, businesses with a higher ROCE are usually better quality. Overall, it is a valuable metric that has its flaws. Renowned investment researcher Michael Mauboussin has suggested that a high ROCE can indicate that 'one dollar invested in the company generates value of more than one dollar'.

So, How Do We Calculate ROCE?

The formula for calculating the return on capital employed is:

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

Or for Beasley Broadcast Group:

0.046 = US$32m ÷ (US$740m - US$42m) (Based on the trailing twelve months to December 2019.)

Therefore, Beasley Broadcast Group has an ROCE of 4.6%.

View our latest analysis for Beasley Broadcast Group

Does Beasley Broadcast Group Have A Good ROCE?

When making comparisons between similar businesses, investors may find ROCE useful. Using our data, Beasley Broadcast Group's ROCE appears to be significantly below the 9.0% average in the Media industry. This performance is not ideal, as it suggests the company may not be deploying its capital as effectively as some competitors. Putting aside Beasley Broadcast Group's performance relative to its industry, its ROCE in absolute terms is poor - considering the risk of owning stocks compared to government bonds. There are potentially more appealing investments elsewhere.

We can see that, Beasley Broadcast Group currently has an ROCE of 4.6%, less than the 7.9% it reported 3 years ago. Therefore we wonder if the company is facing new headwinds. The image below shows how Beasley Broadcast Group's ROCE compares to its industry, and you can click it to see more detail on its past growth.

NasdaqGM:BBGI Past Revenue and Net Income, February 20th 2020

When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. ROCE can be misleading for companies in cyclical industries, with returns looking impressive during the boom times, but very weak during the busts. ROCE is, after all, simply a snap shot of a single year. Future performance is what matters, and you can see analyst predictions in our free report on analyst forecasts for the company.

Do Beasley Broadcast Group's Current Liabilities Skew Its ROCE?

Short term (or current) liabilities, are things like supplier invoices, overdrafts, or tax bills that need to be paid within 12 months. The ROCE equation subtracts current liabilities from capital employed, so a company with a lot of current liabilities appears to have less capital employed, and a higher ROCE than otherwise. To check the impact of this, we calculate if a company has high current liabilities relative to its total assets.

Beasley Broadcast Group has total assets of US$740m and current liabilities of US$42m. As a result, its current liabilities are equal to approximately 5.7% of its total assets. Beasley Broadcast Group has a low level of current liabilities, which have a negligible impact on its already low ROCE.

Our Take On Beasley Broadcast Group's ROCE

Nevertheless, there are potentially more attractive companies to invest in. You might be able to find a better investment than Beasley Broadcast Group. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.