Why The 44% Return On Capital At Blue Bird (NASDAQ:BLBD) Should Have Your Attention

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. With that in mind, the ROCE of Blue Bird (NASDAQ:BLBD) looks great, so lets see what the trend can tell us.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Blue Bird is:

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

0.44 = US$135m ÷ (US$535m - US$229m) (Based on the trailing twelve months to December 2024).

Thus, Blue Bird has an ROCE of 44%. In absolute terms that's a great return and it's even better than the Machinery industry average of 12%.

See our latest analysis for Blue Bird

In the above chart we have measured Blue Bird's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Blue Bird .

What Can We Tell From Blue Bird's ROCE Trend?

Blue Bird is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 44%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 36%. So we're very much inspired by what we're seeing at Blue Bird thanks to its ability to profitably reinvest capital.

On a side note, Blue Bird's current liabilities are still rather high at 43% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Blue Bird's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Blue Bird has. Since the stock has returned a staggering 194% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

While Blue Bird looks impressive, no company is worth an infinite price. The intrinsic value infographic for BLBD helps visualize whether it is currently trading for a fair price.

Blue Bird is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.