BJ's Restaurants (NASDAQ:BJRI) Will Be Looking To Turn Around Its Returns

What underlying fundamental trends can indicate that a company might be in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. On that note, looking into BJ's Restaurants (NASDAQ:BJRI), we weren't too upbeat about how things were going.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for BJ's Restaurants:

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

0.034 = US$30m ÷ (US$1.0b - US$172m) (Based on the trailing twelve months to July 2024).

Therefore, BJ's Restaurants has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 10%.

View our latest analysis for BJ's Restaurants

Above you can see how the current ROCE for BJ's Restaurants compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for BJ's Restaurants .

What Does the ROCE Trend For BJ's Restaurants Tell Us?

In terms of BJ's Restaurants' historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 6.2% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on BJ's Restaurants becoming one if things continue as they have.

Our Take On BJ's Restaurants' ROCE

In summary, it's unfortunate that BJ's Restaurants is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 12% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

One more thing, we've spotted 1 warning sign facing BJ's Restaurants that you might find interesting.

While BJ's Restaurants may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.