We Like Boise Cascade's (NYSE:BCC) Returns And Here's How They're Trending
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Boise Cascade (NYSE:BCC) looks great, so lets see what the trend can tell us.
What is Return On Capital Employed (ROCE)?
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 Boise Cascade, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.32 = US$508m ÷ (US$2.3b - US$697m) (Based on the trailing twelve months to March 2021).
Thus, Boise Cascade has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 9.2%.
View our latest analysis for Boise Cascade
Above you can see how the current ROCE for Boise Cascade 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 Boise Cascade here for free.
What Can We Tell From Boise Cascade's ROCE Trend?
Boise Cascade is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 32%. Basically the business is earning more per dollar of capital invested and in addition to that, 41% more capital is being employed now too. So we're very much inspired by what we're seeing at Boise Cascade thanks to its ability to profitably reinvest capital.
The Bottom Line On Boise Cascade's ROCE
To sum it up, Boise Cascade has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
If you'd like to know more about Boise Cascade, we've spotted 5 warning signs, and 1 of them is a bit concerning.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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. 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.
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