Investors Shouldn't Overlook The Favourable Returns On Capital At Booz Allen Hamilton Holding (NYSE:BAH)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 Booz Allen Hamilton Holding's (NYSE:BAH) ROCE trend, we were very happy with what we saw.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Booz Allen Hamilton Holding is:

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

0.21 = US$1.0b ÷ (US$6.6b - US$1.7b) (Based on the trailing twelve months to June 2024).

Thus, Booz Allen Hamilton Holding has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Professional Services industry average of 14%.

View our latest analysis for Booz Allen Hamilton Holding

In the above chart we have measured Booz Allen Hamilton Holding'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 Booz Allen Hamilton Holding .

How Are Returns Trending?

Booz Allen Hamilton Holding deserves to be commended in regards to it's returns. The company has employed 49% more capital in the last five years, and the returns on that capital have remained stable at 21%. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Booz Allen Hamilton Holding can keep this up, we'd be very optimistic about its future.

In Conclusion...

Booz Allen Hamilton Holding has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 121% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Booz Allen Hamilton Holding (of which 1 is concerning!) that you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.

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