Is Atresmedia Corporación de Medios de Comunicación (BME:A3M) Struggling?

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within Atresmedia Corporación de Medios de Comunicación (BME:A3M), we weren't too hopeful.

Understanding 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 Atresmedia Corporación de Medios de Comunicación is:

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

0.14 = €111m ÷ (€1.2b - €413m) (Based on the trailing twelve months to September 2020).

Thus, Atresmedia Corporación de Medios de Comunicación has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 9.2% it's much better.

View our latest analysis for Atresmedia Corporación de Medios de Comunicación

Above you can see how the current ROCE for Atresmedia Corporación de Medios de Comunicación compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Atresmedia Corporación de Medios de Comunicación here for free.

How Are Returns Trending?

In terms of Atresmedia Corporación de Medios de Comunicación's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 20% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Atresmedia Corporación de Medios de Comunicación to turn into a multi-bagger.

The Key Takeaway

In summary, it's unfortunate that Atresmedia Corporación de Medios de Comunicación is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 62% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

On a separate note, we've found 1 warning sign for Atresmedia Corporación de Medios de Comunicación you'll probably want to know about.

While Atresmedia Corporación de Medios de Comunicación 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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