Slowing Rates Of Return At Ubisoft Entertainment (EPA:UBI) Leave Little Room For Excitement

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at Ubisoft Entertainment's (EPA:UBI) ROCE trend, we were pretty happy with what we saw.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Ubisoft Entertainment:

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

0.11 = €400m ÷ (€4.9b - €1.1b) (Based on the trailing twelve months to March 2021).

So, Ubisoft Entertainment has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.5% generated by the Entertainment industry.

See our latest analysis for Ubisoft Entertainment

Above you can see how the current ROCE for Ubisoft Entertainment compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Ubisoft Entertainment.

How Are Returns Trending?

While the returns on capital are good, they haven't moved much. The company has employed 177% more capital in the last five years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Ubisoft Entertainment has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

To sum it up, Ubisoft Entertainment has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 42% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, Ubisoft Entertainment does come with some risks, and we've found 3 warning signs that you should be aware of.

While Ubisoft Entertainment 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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