Bloomin' Brands' (NASDAQ:BLMN) Returns On Capital Not Reflecting Well On The Business

By
Simply Wall St
Published
November 02, 2021
NasdaqGS:BLMN
Source: Shutterstock

What financial metrics can indicate to us that a company is maturing or even in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. Having said that, after a brief look, Bloomin' Brands (NASDAQ:BLMN) we aren't filled with optimism, but let's investigate further.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Bloomin' Brands is:

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

0.087 = US$203m ÷ (US$3.2b - US$913m) (Based on the trailing twelve months to June 2021).

Therefore, Bloomin' Brands has an ROCE of 8.7%. In absolute terms, that's a low return but it's around the Hospitality industry average of 7.5%.

See our latest analysis for Bloomin' Brands

roce
NasdaqGS:BLMN Return on Capital Employed November 3rd 2021

Above you can see how the current ROCE for Bloomin' Brands compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Bloomin' Brands here for free.

What The Trend Of ROCE Can Tell Us

There is reason to be cautious about Bloomin' Brands, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 12% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Bloomin' Brands becoming one if things continue as they have.

The Key Takeaway

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Investors must expect better things on the horizon though because the stock has risen 25% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

On a final note, we've found 3 warning signs for Bloomin' Brands that we think you should be aware of.

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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