Should You Worry About Beasley Broadcast Group, Inc.’s (NASDAQ:BBGI) ROCE?

Today we are going to look at Beasley Broadcast Group, Inc. (NASDAQ:BBGI) to see whether it might be an attractive investment prospect. Specifically, we’ll consider its Return On Capital Employed (ROCE), since that will give us an insight into how efficiently the business can generate profits from the capital it requires.

First of all, we’ll work out how to calculate ROCE. Second, we’ll look at its ROCE compared to similar companies. Then we’ll determine how its current liabilities are affecting 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. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since ‘No two businesses are exactly alike.

How Do You Calculate Return On Capital Employed?

Analysts use this formula to calculate return on capital employed:

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

Or for Beasley Broadcast Group:

0.045 = US$32m ÷ (US$760m – US$53m) (Based on the trailing twelve months to December 2019.)

Therefore, Beasley Broadcast Group has an ROCE of 4.5%.

Check out our latest analysis for Beasley Broadcast Group

Does Beasley Broadcast Group Have A Good ROCE?

One way to assess ROCE is to compare similar companies. In this analysis, Beasley Broadcast Group’s ROCE appears meaningfully below the 9.0% average reported by the Media industry. This could be seen as a negative, as it suggests some competitors may be employing their capital more efficiently. Regardless of how Beasley Broadcast Group stacks up against its industry, its ROCE in absolute terms is quite low (especially compared to a bank account). It is likely that there are more attractive prospects out there.

You can click on the image below to see (in greater detail) how Beasley Broadcast Group’s past growth compares to other companies.

NasdaqGM:BBGI Past Revenue and Net Income, March 14th 2020
NasdaqGM:BBGI Past Revenue and Net Income, March 14th 2020

When considering ROCE, bear in mind that it reflects the past and does not necessarily 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. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. Since the future is so important for investors, you should check out our free report on analyst forecasts for Beasley Broadcast Group.

What Are Current Liabilities, And How Do They Affect Beasley Broadcast Group’s 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, so a company with a lot of current liabilities appears to have less capital employed, and a higher ROCE than otherwise. To counteract this, we check if a company has high current liabilities, relative to its total assets.

Beasley Broadcast Group has current liabilities of US$53m and total assets of US$760m. Therefore its current liabilities are equivalent to approximately 7.0% of its total assets. Beasley Broadcast Group has a low level of current liabilities, which have a negligible impact on its already low ROCE.

Our Take On Beasley Broadcast Group’s ROCE

Still, investors could probably find more attractive prospects with better performance out there. Of course, you might also be able to find a better stock than Beasley Broadcast Group. So you may wish to see this free collection of other companies that have grown earnings strongly.

If you are like me, then you will not want to miss this free list of growing companies that insiders are 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.

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