Mediaset España Comunicación (BME:TL5) Will Want To Turn Around Its Return Trends

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. In light of that, when we looked at Mediaset España Comunicación (BME:TL5) and its ROCE trend, we weren't exactly thrilled.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Mediaset España Comunicación:

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

0.15 = €208m ÷ (€1.6b - €239m) (Based on the trailing twelve months to March 2022).

Thus, Mediaset España Comunicación has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Media industry average of 17%.

See our latest analysis for Mediaset España Comunicación

In the above chart we have measured Mediaset España Comunicación's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Mediaset España Comunicación here for free.

So How Is Mediaset España Comunicación's ROCE Trending?

On the surface, the trend of ROCE at Mediaset España Comunicación doesn't inspire confidence. Around five years ago the returns on capital were 22%, but since then they've fallen to 15%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Mediaset España Comunicación's ROCE

Bringing it all together, while we're somewhat encouraged by Mediaset España Comunicación's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 59% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

While Mediaset España Comunicación doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.