Will The ROCE Trend At Live Ventures (NASDAQ:LIVE) Continue?

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Live Ventures (NASDAQ:LIVE) looks quite promising in regards to its trends of return on capital.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Live Ventures, this is the formula:

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

0.077 = US$7.9m ÷ (US$156m - US$54m) (Based on the trailing twelve months to June 2020).

So, Live Ventures has an ROCE of 7.7%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 14%.

Check out our latest analysis for Live Ventures

Historical performance is a great place to start when researching a stock so above you can see the gauge for Live Ventures' ROCE against it's prior returns. If you'd like to look at how Live Ventures has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Live Ventures' ROCE Trend?

We're delighted to see that Live Ventures is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 7.7% on its capital. In addition to that, Live Ventures is employing 788% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

Overall, Live Ventures gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One final note, you should learn about the 3 warning signs we've spotted with Live Ventures (including 1 which is doesn't sit too well with us) .

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

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