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# bpost SA/NV (EBR:BPOST) Is Employing Capital Very Effectively

Today we'll look at bpost SA/NV (EBR:BPOST) and reflect on its potential as an investment. 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.

Firstly, we'll go over how we calculate ROCE. Then we'll compare its ROCE to similar companies. Last but not least, we'll look at what impact its current liabilities have on its ROCE.

### Return On Capital Employed (ROCE): What is it?

ROCE measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Generally speaking a higher ROCE is better. In brief, it is a useful tool, but it is not without drawbacks. 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?

Analysts use this formula to calculate return on capital employed:

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

Or for bpost:

0.12 = â‚¬327m Ã· (â‚¬3.6b - â‚¬987m) (Based on the trailing twelve months to September 2019.)

Therefore, bpost has an ROCE of 12%.

Check out our latest analysis for bpost

### Does bpost Have A Good ROCE?

ROCE can be useful when making comparisons, such as between similar companies. In our analysis, bpost's ROCE is meaningfully higher than the 9.9% average in the Logistics industry. I think that's good to see, since it implies the company is better than other companies at making the most of its capital. Independently of how bpost compares to its industry, its ROCE in absolute terms appears decent, and the company may be worthy of closer investigation.

bpost's current ROCE of 12% is lower than 3 years ago, when the company reported a 36% ROCE. Therefore we wonder if the company is facing new headwinds. The image below shows how bpost's ROCE compares to its industry, and you can click it to see more detail on its past growth.

When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. Companies in cyclical industries can be difficult to understand using ROCE, as returns typically look high during boom times, and low during busts. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. What happens in the future is pretty important for investors, so we have prepared a free report on analyst forecasts for bpost.

### What Are Current Liabilities, And How Do They Affect bpost's ROCE?

Liabilities, such as supplier bills and bank overdrafts, are referred to as current liabilities if they need to be paid within 12 months. Due to the way ROCE is calculated, a high level of current liabilities makes a company look as though it has less capital employed, and thus can (sometimes unfairly) boost the ROCE. To check the impact of this, we calculate if a company has high current liabilities relative to its total assets.

bpost has total liabilities of â‚¬987m and total assets of â‚¬3.6b. As a result, its current liabilities are equal to approximately 27% of its total assets. Low current liabilities are not boosting the ROCE too much.

### Our Take On bpost's ROCE

With that in mind, bpost's ROCE appears pretty good. There might be better investments than bpost out there, but you will have to work hard to find them . These promising businesses with rapidly growing earnings might be right up your alley.

I will like bpost better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider 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.

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