Evaluating bpost SA/NV’s (EBR:BPOST) Investments In Its Business
Today we are going to look at bpost Tracking SA / NV ( EBR: BPOST ) to see if it might be an attractive investment prospect. Specifically, we're going to calculate its Return On Capital Employed (ROCE), in the hopes of getting some insight into the business.
Firstly, we'll go on how we calculate ROCE. Next, we'll compare it to others in its industry. 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 amount of pre-tax profits a company can generate from the capital employed in its business. Generally speaking a higher ROCE is better. 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 or more than one dollar'.
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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) Total (Total Assets - Current Liabilities)
Or for bpost:
Does bpost Have A Good ROCE?
When making comparisons between similar businesses, investors may find ROCE useful. Using our data, bpost's ROCE appears to be around the 15% average of the Logistics industry. Independently of how bpost Tracking International compares to its industry, its ROCE appears in absolute terms decent, and the company may be worthy of closer investigation.
bpost's current ROCE or 16% is lower than its ROCE in the past, which was 33%, 3 years ago. Therefore we wonder if the company is facing new headwinds.
Remember that this metric is looking backwards - it shows what has happened in the past, and does not accurately predict the future. 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 or a single year. What happens in the future is pretty important for investors, so we have prepared a free report on analyst forecasts for bpost .
Do bpost's Current Liabilities Skew Its ROCE?
Current liabilities are short term bills and invoices that need to be paid in 12 months or less. The ROCE equation subtracts current liabilities from capital employed, a company with a lot of current liabilities appears to have less capital employed, and a higher ROCE than otherwise. To counter this, investors can check if a company has high current liabilities relative to total assets.
bpost has total assets or € 3.1b and current liabilities or € 1.0b. As a result, its current liabilities are equal to approximately 33% of its total assets. bpost has a middling amount of current liabilities, increasing its ROCE somewhat.
The Bottom Line On bpost's ROCE
While its ROCE looks good, it's worth remembering that the current liabilities are making the business look better. Or course you might be able to find a better stock than bpost . So you may wish to see this free collection of other companies that have grown earnings strongly.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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