What Do The Returns On Capital At Beam Communications Holdings (ASX:BCC) Tell Us?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Beam Communications Holdings' (ASX:BCC) ROCE trend, we were pretty happy with what we saw.

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

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 Beam Communications Holdings, this is the formula:

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

0.11 = AU$1.4m ÷ (AU$17m - AU$4.5m) (Based on the trailing twelve months to December 2020).

So, Beam Communications Holdings has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 7.2% generated by the Communications industry.

Check out our latest analysis for Beam Communications Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Beam Communications Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Beam Communications Holdings' ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 75% in that time. 11% is a pretty standard return, and it provides some comfort knowing that Beam Communications Holdings has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Beam Communications Holdings' ROCE

To sum it up, Beam Communications Holdings has simply been reinvesting capital steadily, at those decent rates of return. Despite the good fundamentals, total returns from the stock have been virtually flat over the last five years. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

One more thing: We've identified 4 warning signs with Beam Communications Holdings (at least 1 which doesn't sit too well with us) , and understanding these would certainly be useful.

While Beam Communications Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.
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