These Metrics Don't Make Grupo Televisa (BMV:TLEVISACPO) Look Too Strong

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. So after glancing at the trends within Grupo Televisa (BMV:TLEVISACPO), we weren't too hopeful.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Grupo Televisa, this is the formula:

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

0.066 = Mex$16b ÷ (Mex$301b - Mex$67b) (Based on the trailing twelve months to September 2020).

Thus, Grupo Televisa has an ROCE of 6.6%. In absolute terms, that's a low return and it also under-performs the Media industry average of 10%.

See our latest analysis for Grupo Televisa

In the above chart we have measured Grupo Televisa's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Grupo Televisa Tell Us?

In terms of Grupo Televisa's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 9.3%, however they're now substantially lower than that as we saw above. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Grupo Televisa becoming one if things continue as they have.

The Bottom Line

In summary, it's unfortunate that Grupo Televisa is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 65% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you want to continue researching Grupo Televisa, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Grupo Televisa 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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This article by Simply Wall St is general in nature. 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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