U.S. markets close in 5 hours 5 minutes
  • S&P 500

    4,126.97
    -61.46 (-1.47%)
     
  • Dow 30

    34,172.38
    -570.44 (-1.64%)
     
  • Nasdaq

    13,245.57
    -156.29 (-1.17%)
     
  • Russell 2000

    2,171.19
    -41.50 (-1.88%)
     
  • Crude Oil

    64.26
    -0.66 (-1.02%)
     
  • Gold

    1,829.20
    -8.40 (-0.46%)
     
  • Silver

    27.42
    -0.07 (-0.24%)
     
  • EUR/USD

    1.2168
    +0.0034 (+0.28%)
     
  • 10-Yr Bond

    1.6240
    +0.0220 (+1.37%)
     
  • GBP/USD

    1.4146
    +0.0025 (+0.18%)
     
  • USD/JPY

    108.4960
    -0.3450 (-0.32%)
     
  • BTC-USD

    55,820.89
    -1,364.57 (-2.39%)
     
  • CMC Crypto 200

    1,488.99
    +1,246.31 (+513.56%)
     
  • FTSE 100

    6,921.91
    -201.77 (-2.83%)
     
  • Nikkei 225

    28,608.59
    -909.71 (-3.08%)
     

Should You Be Impressed By Brambles' (ASX:BXB) Returns on Capital?

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
Simply Wall St
·3 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Brambles (ASX:BXB), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Brambles, this is the formula:

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

0.17 = US$993m ÷ (US$7.5b - US$1.7b) (Based on the trailing twelve months to December 2020).

So, Brambles has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 9.4% generated by the Commercial Services industry.

Check out our latest analysis for Brambles

roce
roce

In the above chart we have measured Brambles' 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 Brambles here for free.

So How Is Brambles' ROCE Trending?

Over the past five years, Brambles' ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Brambles in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. This probably explains why Brambles is paying out 60% of its income to shareholders in the form of dividends. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

Our Take On Brambles' ROCE

In a nutshell, Brambles has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think Brambles has the makings of a multi-bagger.

On a separate note, we've found 3 warning signs for Brambles you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.