Investors Will Want Barnes & Noble Education's (NYSE:BNED) Growth In ROCE To Persist

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Barnes & Noble Education's (NYSE:BNED) returns on capital, so let's have a look.

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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 Barnes & Noble Education is:

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

0.06 = US$33m ÷ (US$1.1b - US$535m) (Based on the trailing twelve months to January 2025).

So, Barnes & Noble Education has an ROCE of 6.0%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 13%.

View our latest analysis for Barnes & Noble Education

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'd like to look at how Barnes & Noble Education has performed in the past in other metrics, you can view this free graph of Barnes & Noble Education's past earnings, revenue and cash flow.

So How Is Barnes & Noble Education's ROCE Trending?

We're pretty happy with how the ROCE has been trending at Barnes & Noble Education. We found that the returns on capital employed over the last five years have risen by 236%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Barnes & Noble Education appears to been achieving more with less, since the business is using 26% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

On a separate but related note, it's important to know that Barnes & Noble Education has a current liabilities to total assets ratio of 49%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Barnes & Noble Education's ROCE

In a nutshell, we're pleased to see that Barnes & Noble Education has been able to generate higher returns from less capital. And since the stock has dived 92% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

On a separate note, we've found 3 warning signs for Barnes & Noble Education you'll probably want to know about.

While Barnes & Noble Education may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.