Return Trends At Benchmark Electronics (NYSE:BHE) Aren’t Appealing

If we want to find a potential multi-baker, there are often major trends that can give clues. First, we want to see the proven return on borrowed capital (ROCE), which increases and, secondly, expands base used capital. If you see this, it usually means it’s a company with a great business model and lots of lucrative reinvestment opportunities. In light of this, when we looked at Electronics test (NYSE: BHE) and its ROCE trend, we weren’t thrilled.

Understanding Return on Investment (ROCE)

For those who are not sure what ROCE is, it measures the amount of pre-tax profit that a company can get from the capital employed in its business. To calculate this figure for Benchmark Electronics, here is the formula:

Return on capital used = interest and taxes (EBIT) ÷ (Total assets – current liabilities)

0.05 = $ 62 million ÷ ($ 1.9 billion – $ 654 million) (Based on the last twelve months to December 2021).

So Benchmark Electronics has a ROCE of 5.0%. In absolute terms, this is a low return, and it is also below the e-industry average of 10%.

See our latest Benchmark Electronics analysis

NYSE: BHE Return on Equity Occupied on February 20, 2022

In the chart above, we measured the previous ROCE Benchmark Electronics with its previous figures, but the future is perhaps more important. If you want, you can check the forecasts of analysts dealing with Benchmark Electronics here for for free.

What can we say about ROCE Trend Benchmark Electronics?

Over the past five years, ROCE Benchmark Electronics has remained relatively unchanged, while the business uses 21% less capital than before. This suggests that assets are being sold, and thus the business is likely to shrink, which, as you may remember, is not a typical ingredient for novice multi-diggers. Not only that, but the low return on this capital, mentioned earlier, will not impress most investors.

It should also be noted that we have noticed that the company has increased its current liabilities over the past five years. This is intriguing because if current liabilities had not increased to 34% of total assets, this shown ROCE would probably have been less than 5.0% because total capital would have been higher. 5.0% ROCE could be even lower if current liabilities were “t 34% of total assets, because the formula would show a larger base of total capital that is involved. So, although current liabilities are not high now, beware to make them even more so because it may introduce some risk elements.

Takeaway key

Overall, we’re not thrilled that Benchmark Electronics is reducing the amount of capital it uses in business. And over the past five years, stocks have given 12%, so the market does not really hope to strengthen these trends in the near future. In general, the inherent trends are not typical of multi-diggers, so if you’re looking for that, we think you’re lucky elsewhere.

In conclusion we found 2 warning signs for Benchmark Electronics we think you should know.

Although Benchmark Electronics may not currently be generating the most profitability, we have compiled a list of companies that currently receive more than 25% return on equity. Check it out for free list here.

This Simply Wall St article is general in nature. We provide comments based on historical data and analysts ’forecasts, using only unbiased methodology, and our articles are not intended as financial advice. This is not a recommendation to buy or sell any stocks, and does not take into account your goals or your financial situation. We aim to provide you with long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality materials. Simply Wall St has no position in any of the listed stocks.

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