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Do You Know About The Brink's Company’s (NYSE:BCO) ROCE?

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Simply Wall St
·4 min read
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Today we'll look at The Brink's Company (NYSE:BCO) and reflect on its potential as an investment. To be precise, we'll consider its Return On Capital Employed (ROCE), as that will inform our view of the quality of the business.

First of all, we'll work out how to calculate ROCE. Then we'll compare its ROCE to similar companies. Finally, we'll look at how its current liabilities affect its ROCE.

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

ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. All else being equal, a better business will have a higher ROCE. Ultimately, it is a useful but imperfect metric. 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?

The formula for calculating the return on capital employed is:

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

Or for Brink's:

0.076 = US$209m ÷ (US$3.8b - US$1.0b) (Based on the trailing twelve months to December 2019.)

Therefore, Brink's has an ROCE of 7.6%.

View our latest analysis for Brink's

Does Brink's Have A Good ROCE?

ROCE is commonly used for comparing the performance of similar businesses. It appears that Brink's's ROCE is fairly close to the Commercial Services industry average of 9.4%. Aside from the industry comparison, Brink's's ROCE is mediocre in absolute terms, considering the risk of investing in stocks versus the safety of a bank account. Investors may wish to consider higher-performing investments.

We can see that, Brink's currently has an ROCE of 7.6%, less than the 14% it reported 3 years ago. So investors might consider if it has had issues recently. The image below shows how Brink's's ROCE compares to its industry, and you can click it to see more detail on its past growth.

NYSE:BCO Past Revenue and Net Income April 19th 2020
NYSE:BCO Past Revenue and Net Income April 19th 2020

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. ROCE is, after all, simply a snap shot of a single year. Future performance is what matters, and you can see analyst predictions in our free report on analyst forecasts for the company.

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

Current liabilities include invoices, such as supplier payments, short-term debt, or a tax bill, that need to be paid within 12 months. Due to the way the ROCE equation works, having large bills due in the near term can make it look as though a company has less capital employed, and thus a higher ROCE than usual. To counteract this, we check if a company has high current liabilities, relative to its total assets.

Brink's has total assets of US$3.8b and current liabilities of US$1.0b. Therefore its current liabilities are equivalent to approximately 27% of its total assets. It is good to see a restrained amount of current liabilities, as this limits the effect on ROCE.

What We Can Learn From Brink's's ROCE

That said, Brink's's ROCE is mediocre, there may be more attractive investments around. You might be able to find a better investment than Brink's. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).

Brink's is not the only stock insiders are buying. So take a peek at this free list of growing companies with 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.