- LIVE QUOTES
- LEARN
- HELP
Nasdaq
Wall Street JournalEN
Biglari Holdings (NYSE:BH.A) Could Be Struggling To Allocate Capital
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Biglari Holdings (NYSE:BH.A), it didn't seem to tick all of these boxes.
Understanding 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 Biglari Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.026 = US$24m ÷ (US$1.1b - US$143m) (Based on the trailing twelve months to September 2025).
Thus, Biglari Holdings has an ROCE of 2.6%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 11%.
See our latest analysis for Biglari Holdings
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Biglari Holdings has performed in the past in other metrics, you can view this free graph of Biglari Holdings' past earnings, revenue and cash flow.
What Does the ROCE Trend For Biglari Holdings Tell Us?
When we looked at the ROCE trend at Biglari Holdings, we didn't gain much confidence. Around five years ago the returns on capital were 6.5%, but since then they've fallen to 2.6%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.
On a related note, Biglari Holdings has decreased its current liabilities to 13% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.
What We Can Learn From Biglari Holdings' ROCE
To conclude, we've found that Biglari Holdings is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 216% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
If you want to continue researching Biglari Holdings, you might be interested to know about the 2 warning signs that our analysis has discovered.
While Biglari Holdings 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.