Returns Are Gaining Momentum At Glacier Media (TSE:GVC)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Glacier Media's (TSE:GVC) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Glacier Media, this is the formula:

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

0.062 = CA$14m ÷ (CA$266m - CA$47m) (Based on the trailing twelve months to March 2021).

So, Glacier Media has an ROCE of 6.2%. Ultimately, that's a low return and it under-performs the Media industry average of 11%.

See our latest analysis for Glacier Media

Historical performance is a great place to start when researching a stock so above you can see the gauge for Glacier Media's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Glacier Media, check out these free graphs here.

How Are Returns Trending?

Glacier Media has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 122% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Glacier Media's ROCE

In summary, we're delighted to see that Glacier Media has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Given the stock has declined 43% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know about the risks facing Glacier Media, we've discovered 3 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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