Investors Met With Slowing Returns on Capital At Broadridge Financial Solutions (NYSE:BR)

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Broadridge Financial Solutions' (NYSE:BR) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Broadridge Financial Solutions, this is the formula:

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

0.16 = US$1.2b ÷ (US$8.2b - US$1.1b) (Based on the trailing twelve months to December 2024).

Therefore, Broadridge Financial Solutions has an ROCE of 16%. That's a pretty standard return and it's in line with the industry average of 16%.

See our latest analysis for Broadridge Financial Solutions

In the above chart we have measured Broadridge Financial Solutions' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Broadridge Financial Solutions for free.

What Can We Tell From Broadridge Financial Solutions' ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 118% more capital into its operations. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

On a side note, Broadridge Financial Solutions has done well to reduce current liabilities to 14% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

In Conclusion...

The main thing to remember is that Broadridge Financial Solutions has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 125% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Broadridge Financial Solutions does have some risks though, and we've spotted 1 warning sign for Broadridge Financial Solutions that you might be interested in.

While Broadridge Financial Solutions isn't earning the highest return, check out this free list of companies that are 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.