Does Resources Connection, Inc. (NASDAQ: RECN) add value to shareholders?

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<p class = "canvas-atom canvas-text MB (1.0em) MB (0) – SM MB (0.8em) – SM" type = "text" content = "Today we're going to look at Resources Connection, Inc. (NASDAQ: RECN) check whether this could be an attractive investment perspective. In particular, we will calculate the return on capital employed (ROCE) to get an insight into the business. "Data-reactid =" 27 "> Today we are going to Resources Connection, Inc. (NASDAQ: RECN) to see if this is an attractive investment prospect, and in particular we are hoping to calculate the return on capital employed (ROCE) to get an insight into the business.

First, we'll look at what ROCE is and how we calculate it. Second, we will look at ROCE compared to similar companies. Then we'll find out how current liabilities affect ROCE.

Understanding Return on Investment (ROCE)

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "ROCE measures the" return "(before taxes) Profit) a company generates from the capital invested in its business, otherwise a better business has a higher ROCE and is ultimately a useful but incomplete metric, the renowned investment researcher Michael Mauboussin has suggested A high ROCE can mean that a dollar invested in the company generates a value of more than one dollar. "data-reactid =" 30 "> The ROCE measures the return (profit before taxes) that a company generates from the capital invested. If everything else is the same, a better company has a higher ROCE and is ultimately a useful but incomplete metric Renowned investment researcher Michael Mauboussin has suggested that a high ROCE indicates that a dollar invested in the company generates more than one dollar in value. ”

How do you calculate the return on investment?

The formula for calculating the return on investment is:

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "Return on investment = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)"data-reactid =" 33 ">Return on investment = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

Or for resource connection:

$ 0.12 = $ 50 million ($ 497 million – $ 89 million) (Based on the last twelve months to August 2019.)

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "Therefore Resources Connection has a ROCE of 12%."data-reactid =" 36 "> Therefore Resources Connection has a ROCE of 12%.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = " Read our latest analysis for Resources Connection "data-reactid =" 37 "> Read our latest analysis for Resources Connection

Is the Resources Connection ROCE good?

ROCE is often used to compare the performance of similar companies. Resources Connection's ROCE appears to be fairly close to the industry average of 11% for professional services. Regardless of the performance of Resources Connection compared to its industry, the ROCE appears to be satisfactory in absolute terms, and it may be worth exploring in more detail.

Click on the image below to see how Resources Connection has grown in the past compared to other companies.

NasdaqGS: RECN Past Revenue and Net Income, January 3, 2020

<p class = "canvas-atom canvas-text MB (1.0em) MB (0) – SM MB (0.8em) – SM" type = "text" content = "It is important to note that ROCE shows past performance ROCE can be deceptive to cyclical companies, as yields can be unbelievable in booming times and terribly low in downturns – after all, ROCE is just a snapshot of a single year free Resources Connection analyst forecast report, "data-reactid =" 53 "> It is important to know that ROCE shows past performance and is not necessarily predictable. ROCE can be deceptive to cyclical companies because returns are unbelievable in booming times and terribly low in downturns After all, ROCE is just a snapshot of a single year, and because the future is so important to investors, you should visit our website free Resources Connection analyst forecast report.

What are current liabilities and how do they affect Resources Connection's ROCE?

Short-term liabilities are short-term bills that must be paid within 12 months or less. Because of the way the ROCE is calculated, a company looks like it has less invested capital due to its high short-term liabilities and can (sometimes wrongly) increase the ROCE. To counteract this, we check whether a company has high short-term liabilities in relation to total assets.

Resources Connection has total assets of $ 497 million and current liabilities of $ 89 million. Therefore, his short-term liabilities correspond to approximately 18% of his total assets. Short-term liabilities are minimal, which limits the impact on ROCE.

The ROCE from The Bottom Line On Resources Connection

<p class = "canvas-atom canvas-text MB (1.0em) MB (0) – SM MB (0.8em) – SM" type = "text" content = "In this sense, the ROCE from Resources Connection seems pretty. It could better investments than resources connection. But you have to work hard to find them , These promising deals with fast growing result Maybe it's close to you."data-reactid =" 58 "> Considering this, the Resources Connection ROCE looks pretty good, there may be better investments than the Resources Connection. But you have to work hard to find them , These promising deals with fast growing result Maybe it's close to you.

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<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) – sm Mt (0,8em) – sm" type = "text" content = "If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com, This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading."data-reactid =" 64 ">If you discover an error that justifies a correction, please contact the editorial team at editorial-team@simplywallst.com. This article from Simply Wall St is general in nature. It is not a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Simply Wall St has no position in the stocks mentioned.

We strive to provide you with long-term, focused research analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Thank you for reading.