U.S. Markets closed
  • S&P 500

    3,269.96
    -40.15 (-1.21%)
     
  • Dow 30

    26,501.60
    -157.51 (-0.59%)
     
  • Nasdaq

    10,911.59
    -274.00 (-2.45%)
     
  • Russell 2000

    1,538.48
    -23.10 (-1.48%)
     
  • Crude Oil

    35.72
    -0.45 (-1.24%)
     
  • Gold

    1,878.80
    +10.80 (+0.58%)
     
  • Silver

    23.72
    +0.35 (+1.52%)
     
  • EUR/USD

    1.1650
    -0.0029 (-0.2446%)
     
  • 10-Yr Bond

    0.8600
    +0.0250 (+2.99%)
     
  • Vix

    38.02
    +0.43 (+1.14%)
     
  • GBP/USD

    1.2951
    +0.0028 (+0.2163%)
     
  • USD/JPY

    104.6200
    +0.0100 (+0.0096%)
     
  • BTC-USD

    13,501.01
    -34.38 (-0.25%)
     
  • CMC Crypto 200

    265.42
    +1.78 (+0.68%)
     
  • FTSE 100

    5,577.27
    -4.48 (-0.08%)
     
  • Nikkei 225

    22,977.13
    -354.81 (-1.52%)
     

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

Simply Wall St
·3 mins read

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. However, after investigating Brambles (ASX:BXB), we don't think it's current trends fit the mold of a multi-bagger.

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

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 Brambles, this is the formula:

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

0.17 = US$947m ÷ (US$7.1b - US$1.5b) (Based on the trailing twelve months to June 2020).

So, Brambles has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 14% 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Brambles' ROCE Trending?

Things have been pretty stable at Brambles, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Brambles doesn't end up being a multi-bagger in a few years time. That being the case, it makes sense that Brambles has been paying out 66% of its earnings to its shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

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. And investors may be recognizing these trends since the stock has only returned a total of 25% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to continue researching Brambles, you might be interested to know about the 2 warning signs that our analysis has discovered.

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@simplywallst.com.