Biglari Holdings (NYSE:BHA) Shareholders Will Want The ROCE Trajectory To Continue

Published
August 10, 2022
NYSE:BH.A
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There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Biglari Holdings' (NYSE:BHA) returns on capital, so let's have a look.

Understanding 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)

0.056 = US$36m ÷ (US$773m - US$138m) (Based on the trailing twelve months to June 2022).

Therefore, Biglari Holdings has an ROCE of 5.6%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 10%.

View our latest analysis for Biglari Holdings

roce
NYSE:BHA Return on Capital Employed August 10th 2022

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Biglari Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Biglari Holdings has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 165% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 34% less than it was five years ago, which can be indicative of a business that's improving its efficiency. 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.

What We Can Learn From Biglari Holdings' ROCE

In a nutshell, we're pleased to see that Biglari Holdings has been able to generate higher returns from less capital. And with a respectable 25% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we've found 1 warning sign for Biglari Holdings 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.

Valuation is complex, but we're helping make it simple.

Find out whether Biglari Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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