Beacon Roofing Supply (NASDAQ:BECN) Is Looking To Continue Growing Its Returns On Capital

Simply Wall St

Sun, Nov 27, 2022, 8:17 AM3 min read

In this article:

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Beacon Roofing Supply (NASDAQ:BECN) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Beacon Roofing Supply is:

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

0.16 = US$734m ÷ (US$6.2b - US$1.7b) (Based on the trailing twelve months to September 2022).

Thus, Beacon Roofing Supply has an ROCE of 16%. By itself that's a normal return on capital and it's in line with the industry's average returns of 16%.

View our latest analysis for Beacon Roofing Supply

Above you can see how the current ROCE for Beacon Roofing Supply compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Beacon Roofing Supply Tell Us?

The trends we've noticed at Beacon Roofing Supply are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 16%. The amount of capital employed has increased too, by 67%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Beacon Roofing Supply's ROCE

To sum it up, Beacon Roofing Supply has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing to note, we've identified 2 warning signs with Beacon Roofing Supply and understanding these should be part of your investment process.

While Beacon Roofing Supply 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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Return On Capital Employed (ROCE): What Is It?

What Does the ROCE Trend For Beacon Roofing Supply Tell Us?

Our Take On Beacon Roofing Supply's ROCE

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