Benchmark Electronics (NYSE:BHE) Is Experiencing Growth In Returns On Capital
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Benchmark Electronics (NYSE:BHE) so let's look a bit deeper.
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. The formula for this calculation on Benchmark Electronics is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.07 = US$115m ÷ (US$2.3b - US$699m) (Based on the trailing twelve months to September 2023).
So, Benchmark Electronics has an ROCE of 7.0%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 12%.
View our latest analysis for Benchmark Electronics
In the above chart we have measured Benchmark Electronics' 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 report for Benchmark Electronics.
The Trend Of ROCE
Benchmark Electronics has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 34% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
Our Take On Benchmark Electronics' ROCE
As discussed above, Benchmark Electronics appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 27% to shareholders. So with that in mind, we think the stock deserves further research.
If you'd like to know about the risks facing Benchmark Electronics, we've discovered 1 warning sign that you should be aware of.
While Benchmark Electronics may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
