What Do You Get For Owning Broadridge Financial Solutions Inc (NYSE:BR)?

I am writing today to help inform people who are new to the stock market and want a simplistic look at the return on Broadridge Financial Solutions Inc (NYSE:BR) stock.

Purchasing Broadridge Financial Solutions gives you an ownership stake in the company. This share represents a portion of capital used by the company to operate the business, and it is important the company is able to use the capital base efficiently to create adequate cash flows for you as an investor. Your return is tied to BR’s ability to do this because the amount earned is used to invest in opportunities to grow the business or payout dividends, which are the two sources of return on investment. Thus, to understand how your money can grow by investing in Broadridge Financial Solutions, you need to look at what the company returns to owners for the use of their capital, which can be done in many ways but today we will use return on capital employed (ROCE).

See our latest analysis for Broadridge Financial Solutions

What is Return on Capital Employed (ROCE)?

Choosing to invest in Broadridge Financial Solutions comes at the cost of investing in another potentially favourable company. The cost of missing out on another opportunity comes in the form of the potential long term gain you could've received, which is dependent on the gap between the return on capital you could've achieved and that of the company you invested in. Hence, capital returns are very important, and should be examined before you invest in conjunction with a certain benchmark that represents the minimum return you require to be compensated for the risk of missing out on other potentially lucrative investments. We'll look at Broadridge Financial Solutions’s returns by computing return on capital employed, which will tell us what the company can generate from the money spent in operations. Take a look at the formula box beneath:

As you can see, BR earned $22.2 from every $100 you invested over the previous twelve months. This shows Broadridge Financial Solutions provides a superb return on capital that is above the 15% ROCE that is typically considered to be a strong benchmark. As a result, if BR is clever with their reinvestments or dividend payments, investors can grow their capital at a fast rate over time.

Can any of this change?

BR is efficient with the use of capital, but this is only the case if BR continues to maintain the presently healthy ROCE, which will change if the company either earns less or requires more capital to create earnings. So it is important for investors to understand what is going on under the hood and look at how these variables have been behaving. Three years ago, BR’s ROCE was 23.6%, which means the company's capital returns have worsened. Over the same period, EBT went from US$438.9m to US$561.0m but capital employed has improved by a relatively larger volume due to a rise in total assets , which suggests investor's ROCE has fallen because the company requires more capital to create earnings despite the previous growth in EBT.

Next Steps

Despite BR's downward trend in ROCE in the recent past, the company still remains an attractive candidate that is capable of producing solid capital returns and a potentially strong return on investment. It is important to know that ROCE does not dictate returns alone, so you need to consider other fundamentals in the business such as future prospects and valuation. It's important to account for these factors because you cannot be sure if the downward path is a signal to run, or just a blip in an otherwise solid return profile. If you're interested in diving deeper, take a look at what I've linked below for further information on these fundamentals and other potential investment opportunities.

1. Future Outlook: What are well-informed industry analysts predicting for BR’s future growth? Take a look at our free research report of analyst consensus for BR’s outlook.
2. Valuation: What is BR worth today? Is the stock undervalued, even if its ROCE is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BR is currently mispriced by the market.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.