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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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So when we looked at the ROCE trend of Build-A-Bear Workshop (NYSE:BBW) we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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. To calculate this metric for Build-A-Bear Workshop, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.32 = US$66m ÷ (US$290m - US$79m) (Based on the trailing twelve months to February 2025).
Thus, Build-A-Bear Workshop has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 13%.
Check out 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 to see what analysts are forecasting going forward, you should check out our free analyst report for Build-A-Bear Workshop .
What The Trend Of ROCE Can Tell Us
Build-A-Bear Workshop has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 3,880% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
The Bottom Line On Build-A-Bear Workshop's ROCE
As discussed above, Build-A-Bear Workshop appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 2,331% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.