I am writing today to help inform people who are new to the stock market and want to better understand how you can grow your money by investing in Glacier Media Inc (TSE:GVC).
Purchasing Glacier Media gives you an ownership stake in the company. Your equity share is granted in return for the capital provided to the business to operate, and in order for an investment to be successful the business has to create earnings from the funds that make up this capital. Your return is tied to GVC’s ability to do this because the amount earned is used to invest in opportunities to grow the business or payout dividends, which are the two sources of return on investment. To understand Glacier Media’s capital returns we will look at a useful metric called return on capital employed. This will tell us if the company is growing your capital and placing you in good stead to sell your shares at a profit.
Calculating Return On Capital Employed for GVC
You only have a finite amount of capital to invest, so there are only so many companies that you can add to your portfolio. The cost of missing out on another opportunity comes in the form of the potential long term gain you could’ve received, which is dependent on the gap between the return on capital you could’ve achieved and that of the company you invested in. Hence, capital returns are very important, and should be examined before you invest in conjunction with a certain benchmark that represents the minimum return you require to be compensated for the risk of missing out on other potentially lucrative investments. We’ll look at Glacier Media’s returns by computing return on capital employed, which will tell us what the company can generate from the money spent in operations. I have calculated Glacier Media’s ROCE for you below:
ROCE Calculation for GVC
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = CA$6.99m ÷ (CA$245.75m – CA$46.35m) = 3.51%
As you can see, GVC earned CA$3.5 from every CA$100 you invested over the previous twelve months. Comparing this to a healthy 15% benchmark shows Glacier Media is currently unable to return a satisfactory amount to owners for the use of their capital, which isn’t good for investors who have forgone other potentially solid companies.
A deeper look
GVC doesn’t return an attractive amount on capital, but this will only continue if the company is unable to increase earnings or decrease current capital requirements. Because of this, it is important to look beyond the final value of GVC’s ROCE and understand what is happening to the individual components. Looking three years in the past, it is evident that GVC’s ROCE has risen from 3.41%, indicating the company’s capital returns have stengthened. In this time, earnings have actually fallen from CA$14.34m to CA$6.99m, but the use of capital has fallen further due to a fall in total assets employed , which means that although earnings are smaller than before, GVC requires less capital to produce each CA$1 of earnings.
Although Glacier Media’s ROCE is currently below the acceptable benchmark, the company has triggered an upward trend over the recent past which could signal an opportunity for a solid return on investment in the long term. Before making any decisions, ROCE does not tell the whole picture so you need to pay attention to other fundamentals like the management team and valuation to determine whether there is potential for return by focusing our attention elsewhere. If you’re building your portfolio and want to take a deeper look, I’ve added a few links below that will help you further evaluate GVC or move on to other alternatives.
- Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for Glacier Media’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
- Valuation: What is GVC worth today? Despite the unattractive ROCE, is the outlook correctly factored in to the price? The intrinsic value infographic in our free research report helps visualize whether GVC is currently undervalued by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.