Returns On Capital Signal Difficult Times Ahead For Lucisano Media Group (BIT:LMG)

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. In light of that, from a first glance at Lucisano Media Group (BIT:LMG), we've spotted some signs that it could be struggling, so let's investigate.

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 Lucisano Media Group, this is the formula:

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

0.0037 = €264k ÷ (€89m - €18m) (Based on the trailing twelve months to December 2020).

Thus, Lucisano Media Group has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 13%.

Check out our latest analysis for Lucisano Media Group

Above you can see how the current ROCE for Lucisano Media Group 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 Lucisano Media Group here for free.

The Trend Of ROCE

We are a bit worried about the trend of returns on capital at Lucisano Media Group. To be more specific, the ROCE was 9.3% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Lucisano Media Group to turn into a multi-bagger.

The Bottom Line On Lucisano Media Group's ROCE

In summary, it's unfortunate that Lucisano Media Group is generating lower returns from the same amount of capital. In spite of that, the stock has delivered a 20% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

Lucisano Media Group does have some risks, we noticed 4 warning signs (and 2 which are a bit unpleasant) we think you should know about.

While Lucisano Media Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

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