There Are Reasons To Feel Uneasy About Broadridge Financial Solutions' (NYSE:BR) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Broadridge Financial Solutions (NYSE:BR) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Broadridge Financial Solutions:

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

0.099 = US$693m ÷ (US$8.1b - US$1.1b) (Based on the trailing twelve months to December 2021).

Thus, Broadridge Financial Solutions has an ROCE of 9.9%. Ultimately, that's a low return and it under-performs the IT industry average of 14%.

See our latest analysis for Broadridge Financial Solutions

Above you can see how the current ROCE for Broadridge Financial Solutions 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.

The Trend Of ROCE

On the surface, the trend of ROCE at Broadridge Financial Solutions doesn't inspire confidence. To be more specific, ROCE has fallen from 21% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Broadridge Financial Solutions' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Broadridge Financial Solutions. And long term investors must be optimistic going forward because the stock has returned a huge 135% to shareholders in the last five years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you'd like to know more about Broadridge Financial Solutions, we've spotted 3 warning signs, and 1 of them doesn't sit too well with us.

While Broadridge Financial Solutions isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.