BrightView Holdings (NYSE:BV) Is Doing The Right Things To Multiply Its Share Price
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in BrightView Holdings' (NYSE:BV) returns on capital, so let's have a look.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for BrightView Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.04 = US$115m ÷ (US$3.3b - US$461m) (Based on the trailing twelve months to December 2022).
So, BrightView Holdings has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 9.7%.
View our latest analysis for BrightView Holdings
In the above chart we have measured BrightView Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering BrightView Holdings here for free.
What Does the ROCE Trend For BrightView Holdings Tell Us?
While there are companies with higher returns on capital out there, we still find the trend at BrightView Holdings promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 112% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
In Conclusion...
To bring it all together, BrightView Holdings has done well to increase the returns it's generating from its capital employed. Given the stock has declined 40% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.
One more thing: We've identified 3 warning signs with BrightView Holdings (at least 1 which shouldn't be ignored) , and understanding these would certainly be useful.
While BrightView Holdings 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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