Some Investors May Be Worried About Lucisano Media Group's (BIT:LMG) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Lucisano Media Group (BIT:LMG) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.048 = €4.2m ÷ (€113m - €27m) (Based on the trailing twelve months to December 2022).

Thus, Lucisano Media Group has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 10%.

See 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

When we looked at the ROCE trend at Lucisano Media Group, we didn't gain much confidence. To be more specific, ROCE has fallen from 7.0% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Lucisano Media Group's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Lucisano Media Group is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 44% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Lucisano Media Group does have some risks, we noticed 5 warning signs (and 1 which shouldn't be ignored) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.