Biglari Holdings (NYSE:BH.A) Is Experiencing Growth In Returns On Capital

By
Simply Wall St
Published
November 02, 2021
NYSE:BH.A
Source: Shutterstock

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Biglari Holdings (NYSE:BH.A) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Biglari Holdings is:

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

0.043 = US$34m ÷ (US$934m - US$142m) (Based on the trailing twelve months to June 2021).

Thus, Biglari Holdings has an ROCE of 4.3%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 7.5%.

Check out our latest analysis for Biglari Holdings

roce
NYSE:BH.A Return on Capital Employed November 3rd 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Biglari Holdings' ROCE against it's prior returns. If you're interested in investigating Biglari Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Biglari Holdings' ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. We found that the returns on capital employed over the last five years have risen by 28%. The company is now earning US$0.04 per dollar of capital employed. In regards to capital employed, Biglari Holdings appears to been achieving more with less, since the business is using 20% less capital to run its operation. Biglari Holdings may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

In summary, it's great to see that Biglari Holdings has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has only returned 7.7% to shareholders over the last three years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know more about Biglari Holdings, we've spotted 2 warning signs, and 1 of them is concerning.

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.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.