These Return Metrics Don't Make LivaNova (NASDAQ:LIVN) Look Too Strong

When researching a stock for investment, what can tell us that the company is in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after we looked into LivaNova (NASDAQ:LIVN), the trends above didn't look too great.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for LivaNova:

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

0.032 = US$66m ÷ (US$2.4b - US$335m) (Based on the trailing twelve months to December 2023).

Thus, LivaNova has an ROCE of 3.2%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 9.6%.

Check out our latest analysis for LivaNova

In the above chart we have measured LivaNova's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering LivaNova for free.

The Trend Of ROCE

There is reason to be cautious about LivaNova, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 4.6% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect LivaNova to turn into a multi-bagger.

Our Take On LivaNova's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Investors haven't taken kindly to these developments, since the stock has declined 23% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

LivaNova does have some risks though, and we've spotted 1 warning sign for LivaNova that you might be interested in.

While LivaNova 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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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.