Returns on Capital Paint A Bright Future For Build-A-Bear Workshop (NYSE:BBW)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Build-A-Bear Workshop (NYSE:BBW) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Build-A-Bear Workshop is:

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

0.35 = US$66m ÷ (US$272m - US$84m) (Based on the trailing twelve months to February 2024).

Therefore, Build-A-Bear Workshop has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 13%.

View our latest analysis for Build-A-Bear Workshop

Above you can see how the current ROCE for Build-A-Bear Workshop 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 Build-A-Bear Workshop for free.

What Does the ROCE Trend For Build-A-Bear Workshop Tell Us?

We're delighted to see that Build-A-Bear Workshop is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 35% which is a sight for sore eyes. In addition to that, Build-A-Bear Workshop is employing 61% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

To the delight of most shareholders, Build-A-Bear Workshop has now broken into profitability. And a remarkable 425% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 2 warning signs for Build-A-Bear Workshop you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.