Returns On Capital At General Motors (NYSE:GM) Have Hit The Brakes

By
Goran Damchevski
Published
September 12, 2021
NYSE:GM
Source: Shutterstock

General Motors (NYSE:GM)

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— *Walter Bloomberg (@DeItaone) September 11, 2021

What is 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. The formula for this calculation on General Motors is:

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

0.09 = US$15b ÷ (US$242b - US$75b) (Based on the trailing twelve months to June 2021).

Therefore, General Motors has an ROCE of 9.0%. In absolute terms, that's a low return but it's around the Auto industry average of 9.8%.

Check out our latest analysis for General Motors

roce
NYSE:GM Return on Capital Employed September 13th 2021

Above you can see how the current ROCE for General Motors compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From General Motors' ROCE Trend?

In terms of General Motors' historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 9.0% and the business has deployed 24% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From General Motors' ROCE

As we've seen above, General Motors' returns on capital haven't increased but it is reinvesting in the business. Although the market must be expecting these trends to improve because the stock has gained 85% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a separate note, we've found 2 warning signs for General Motors you'll probably want to know about.

While General Motors 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.

Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article 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.

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