Today we’ll look at ANY Biztonsági Nyomda Nyrt. (BUSE:ANY) and reflect on its potential as an investment. 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 over 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 ‘return’ (pre-tax profit) a company generates from 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.’
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 Assets – Current Liabilities)
Or for ANY Biztonsági Nyomda Nyrt:
0.19 = Ft1.8b ÷ (Ft21b – Ft12b) (Based on the trailing twelve months to March 2019.)
Therefore, ANY Biztonsági Nyomda Nyrt has an ROCE of 19%.
Is ANY Biztonsági Nyomda Nyrt’s ROCE Good?
When making comparisons between similar businesses, investors may find ROCE useful. ANY Biztonsági Nyomda Nyrt’s ROCE appears to be substantially greater than the 9.6% average in the Commercial Services industry. I think that’s good to see, since it implies the company is better than other companies at making the most of its capital. Regardless of where ANY Biztonsági Nyomda Nyrt sits next to its industry, its ROCE in absolute terms appears satisfactory, and this company could be worth a closer look.
We can see that , ANY Biztonsági Nyomda Nyrt currently has an ROCE of 19% compared to its ROCE 3 years ago, which was 14%. This makes us wonder if the company is improving.
It is important to remember that ROCE shows past performance, and is 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.
ANY Biztonsági Nyomda Nyrt’s Current Liabilities And Their Impact On Its ROCE
Current liabilities are short term bills and invoices that need to be paid in 12 months or less. Due to the way ROCE is calculated, a high level of current liabilities makes a company look as though it has less capital employed, and thus can (sometimes unfairly) boost the ROCE. To check the impact of this, we calculate if a company has high current liabilities relative to its total assets.
ANY Biztonsági Nyomda Nyrt has total liabilities of Ft12b and total assets of Ft21b. As a result, its current liabilities are equal to approximately 56% of its total assets. This is admittedly a high level of current liabilities, improving ROCE substantially.
Our Take On ANY Biztonsági Nyomda Nyrt’s ROCE
While its ROCE looks decent, it wouldn’t look so good if it reduced current liabilities. ANY Biztonsági Nyomda Nyrt looks strong on this analysis, but there are plenty of other companies that could be a good opportunity . Here is a free list of companies growing earnings rapidly.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.