What Do You Get For Owning Buhler Industries Inc (TSE:BUI)?

This article is intended for those of you who are at the beginning of your investing journey and want a simplistic look at the return on Buhler Industries Inc (TSX:BUI) stock.

Buying Buhler Industries makes you a partial owner of the company. As a result, your investment is being put to work to fund operations and if you want to earn an attractive return on your investment, the business needs to be making an adequate amount of money from the funds you provide. You need to pay attention to this because your return on investment is linked to dividends and internal investments to improve the business, which can only occur if the company is expected to produce adequate earnings with the capital that has been provided. Thus, to understand how your money can grow by investing in Buhler Industries, you need to look at what the company returns to owners for the use of their capital, which can be done in many ways but today we will use return on capital employed (ROCE).

Check out our latest analysis for Buhler Industries

Buhler Industries’s Return On Capital Employed

As an investor you have many alternative companies to choose from, which means there is an opportunity cost in any investment you make in the form of a foregone investment in another company. Therefore all else aside, your investment in a certain company represents a vote of confidence that the money used to buy the stock will grow larger than if invested elsewhere. So the business’ ability to grow the size of your capital is very important and can be assessed by comparing the return on capital you can get on your investment with a hurdle rate that depends on the other return possibilities you can identify. We can look at Buhler Industries’s returns by computing return on capital employed, which will tell us what the company can generate from the money spent in operations. I have calculated Buhler Industries’s ROCE for you below:

ROCE Calculation for BUI

Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)

Capital Employed = (Total Assets – Current Liabilities)

∴ ROCE = CA$646.00K ÷ (CA$332.60M – CA$152.57M) = 0.36%

BUI’s 0.36% ROCE means that for every CA$100 you invest, the company creates CA$0.4. This makes Buhler Industries disappointing when compared to a robust 15% ROCE yardstick. So if this rate continues in to the future, investor capital may be able to compound over time, but not to standard that investors should be aiming for.

TSX:BUI Last Perf Mar 26th 18
TSX:BUI Last Perf Mar 26th 18

A deeper look

BUI doesn’t return an attractive amount on capital, but this will only continue if the company is unable to increase earnings or decrease current capital requirements. Because of this, it is important to look beyond the final value of BUI’s ROCE and understand what is happening to the individual components. Three years ago, BUI’s ROCE was 3.12%, which means the company’s capital returns have worsened. Over this time, earnings have fallen from CA$6.21M to CA$646.00K whilst capital employed has also decreased but to a smaller extent, which means the company’s ROCE has deteriorated due to a decline in earnings relative to the capital invested in the business.

Next Steps

Buhler Industries’s ROCE has declined over the recent past and is currently at a level that makes us question whether the company is worth in investing in. However, return on capital employed is a static metric that should be looked at in conjunction with other fundamental indicators like the management team. If you’re building your portfolio and want to take a deeper look, I’ve added a few links below that will help you further evaluate BUI or move on to other alternatives.

  • 1. Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for Buhler Industries’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
  • 2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.