Returns On Capital At Cumulus Media (NASDAQ:CMLS) Paint A Concerning Picture

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? 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. So after glancing at the trends within Cumulus Media (NASDAQ:CMLS), we weren't too hopeful.

What is Return On Capital Employed (ROCE)?

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 Cumulus Media:

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

0.0008 = US$1.4m ÷ (US$1.8b - US$137m) (Based on the trailing twelve months to March 2021).

Thus, Cumulus Media has an ROCE of 0.08%. Ultimately, that's a low return and it under-performs the Media industry average of 9.5%.

View our latest analysis for Cumulus Media

Above you can see how the current ROCE for Cumulus Media compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Cumulus Media here for free.

What Does the ROCE Trend For Cumulus Media Tell Us?

In terms of Cumulus Media's historical ROCE trend, it isn't fantastic. Unfortunately, returns have declined substantially over the last five years to the 0.08% we see today. What's equally concerning is that the amount of capital deployed in the business has shrunk by 40% over that same period. The fact that both are shrinking is an indication that the business is going through some tough times. If these underlying trends continue, we wouldn't be too optimistic going forward.

What We Can Learn From Cumulus Media's ROCE

To see Cumulus Media reducing the capital employed in the business in tandem with diminishing returns, is concerning. Long term shareholders who've owned the stock over the last three years have experienced a 18% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a separate note, we've found 1 warning sign for Cumulus Media you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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