Postmedia Network Canada (TSE:PNC.B) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So on that note, Postmedia Network Canada (TSE:PNC.B) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Postmedia Network Canada is:

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

0.061 = CA$10m ÷ (CA$243m - CA$78m) (Based on the trailing twelve months to February 2022).

Therefore, Postmedia Network Canada has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the Media industry average of 10.0%.

See our latest analysis for Postmedia Network Canada

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

What Can We Tell From Postmedia Network Canada's ROCE Trend?

It's great to see that Postmedia Network Canada has started to generate some pre-tax earnings from prior investments. While the business is profitable now, it used to be incurring losses on invested capital five years ago. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 47%. Postmedia Network Canada could be selling under-performing assets since the ROCE is improving.

Our Take On Postmedia Network Canada's ROCE

From what we've seen above, Postmedia Network Canada has managed to increase it's returns on capital all the while reducing it's capital base. And a remarkable 235% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 2 warning signs with Postmedia Network Canada (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

While Postmedia Network Canada 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.

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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.