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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Bloomin' Brands (NASDAQ:BLMN) looks decent, right now, so lets see what the trend of returns can tell us.
Return On Capital Employed (ROCE): What is it?
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. To calculate this metric for Bloomin' Brands, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$344m ÷ (US$3.2b - US$936m) (Based on the trailing twelve months to March 2022).
So, Bloomin' Brands has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 10% generated by the Hospitality industry.
See our latest analysis for Bloomin' Brands
In the above chart we have measured Bloomin' Brands' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Bloomin' Brands here for free.
The Trend Of ROCE
While the current returns on capital are decent, they haven't changed much. The company has employed 29% more capital in the last five years, and the returns on that capital have remained stable at 15%. 15% is a pretty standard return, and it provides some comfort knowing that Bloomin' Brands has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
What We Can Learn From Bloomin' Brands' ROCE
The main thing to remember is that Bloomin' Brands has proven its ability to continually reinvest at respectable rates of return. Yet over the last five years the stock has declined 16%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.
If you'd like to know about the risks facing Bloomin' Brands, we've discovered 3 warning signs that you should be aware of.
While Bloomin' Brands isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.