Returns On Capital Are Showing Encouraging Signs At BrightView Holdings (NYSE:BV)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at BrightView Holdings (NYSE:BV) and its trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for BrightView Holdings, this is the formula:

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

0.036 = US$103m ÷ (US$3.3b - US$421m) (Based on the trailing twelve months to December 2023).

Thus, BrightView Holdings has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 10%.

View our latest analysis for BrightView Holdings

In the above chart we have measured BrightView Holdings' 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 BrightView Holdings .

What Can We Tell From BrightView Holdings' ROCE Trend?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 31% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On BrightView Holdings' ROCE

In summary, we're delighted to see that BrightView Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Astute investors may have an opportunity here because the stock has declined 32% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for BV on our platform that is definitely worth checking out.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.