AMC Networks (NASDAQ:AMCX) Is Finding It Tricky To Allocate Its Capital

When researching a stock for investment, what can tell us that the company is in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. Having said that, after a brief look, AMC Networks (NASDAQ:AMCX) we aren't filled with optimism, but let's investigate further.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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. Analysts use this formula to calculate it for AMC Networks:

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

0.11 = US$389m ÷ (US$4.3b - US$753m) (Based on the trailing twelve months to March 2025).

Thus, AMC Networks has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 8.8% it's much better.

Check out our latest analysis for AMC Networks

Above you can see how the current ROCE for AMC Networks 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 analyst report for AMC Networks .

So How Is AMC Networks' ROCE Trending?

The trend of returns that AMC Networks is generating are raising some concerns. Unfortunately, returns have declined substantially over the last five years to the 11% we see today. On top of that, the business is utilizing 21% less capital within its operations. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. If these underlying trends continue, we wouldn't be too optimistic going forward.

The Bottom Line

To see AMC Networks reducing the capital employed in the business in tandem with diminishing returns, is concerning. We expect this has contributed to the stock plummeting 76% during the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Like most companies, AMC Networks does come with some risks, and we've found 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.