Is Beasley Broadcast Group, Inc. (NASDAQ:BBGI) Struggling With Its 5.8% Return On Capital Employed?

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Today we’ll look at Beasley Broadcast Group, Inc. (NASDAQ:BBGI) and reflect on its potential as an investment. In particular, we’ll consider its Return On Capital Employed (ROCE), as that can give us insight into how profitably the company is able to employ capital in its business.

First up, we’ll look at what ROCE is and how we calculate it. Then we’ll compare its ROCE to similar companies. Then we’ll determine how its current liabilities are affecting its ROCE.

Understanding Return On Capital Employed (ROCE)

ROCE measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. In general, businesses with a higher ROCE are usually better quality. In brief, it is a useful tool, but it is not without drawbacks. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since ‘No two businesses are exactly alike.’

So, How Do We Calculate ROCE?

Analysts use this formula to calculate return on capital employed:

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

Or for Beasley Broadcast Group:

0.058 = US$38m ÷ (US$681m – US$29m) (Based on the trailing twelve months to March 2019.)

So, Beasley Broadcast Group has an ROCE of 5.8%.

See our latest analysis for Beasley Broadcast Group

Does Beasley Broadcast Group Have A Good ROCE?

When making comparisons between similar businesses, investors may find ROCE useful. We can see Beasley Broadcast Group’s ROCE is meaningfully below the Media industry average of 8.8%. This performance is not ideal, as it suggests the company may not be deploying its capital as effectively as some competitors. Setting aside the industry comparison for now, Beasley Broadcast Group’s ROCE is mediocre in absolute terms, considering the risk of investing in stocks versus the safety of a bank account. It is possible that there are more rewarding investments out there.

NasdaqGM:BBGI Past Revenue and Net Income, May 6th 2019
NasdaqGM:BBGI Past Revenue and Net Income, May 6th 2019

When considering ROCE, bear in mind that it reflects the past and does not necessarily predict the future. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. What happens in the future is pretty important for investors, so we have prepared a free report on analyst forecasts for Beasley Broadcast Group.

Beasley Broadcast Group’s Current Liabilities And Their Impact On Its ROCE

Short term (or current) liabilities, are things like supplier invoices, overdrafts, or tax bills that need to be paid within 12 months. Due to the way the ROCE equation works, having large bills due in the near term can make it look as though a company has less capital employed, and thus a higher ROCE than usual. To check the impact of this, we calculate if a company has high current liabilities relative to its total assets.

Beasley Broadcast Group has total assets of US$681m and current liabilities of US$29m. As a result, its current liabilities are equal to approximately 4.2% of its total assets. Beasley Broadcast Group reports few current liabilities, which have a negligible impact on its unremarkable ROCE.

What We Can Learn From Beasley Broadcast Group’s ROCE

If performance improves, then Beasley Broadcast Group may be an OK investment, especially at the right valuation. But note: make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20).

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.