We Like These Underlying Return On Capital Trends At Formula One Group (NASDAQ:FWON.K)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Formula One Group (NASDAQ:FWON.K) and its trend of ROCE, we really liked what we saw.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Formula One Group, this is the formula:

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

0.017 = US$170m ÷ (US$11b - US$998m) (Based on the trailing twelve months to March 2023).

Therefore, Formula One Group has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 12%.

Check out our latest analysis for Formula One Group

Above you can see how the current ROCE for Formula One Group 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 Formula One Group here for free.

SWOT Analysis for Formula One Group

So How Is Formula One Group's ROCE Trending?

Shareholders will be relieved that Formula One Group has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 1.7%, which is always encouraging. While returns have increased, the amount of capital employed by Formula One Group has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

Our Take On Formula One Group's ROCE

To bring it all together, Formula One Group has done well to increase the returns it's generating from its capital employed. And a remarkable 128% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing Formula One Group, we've discovered 2 warning signs that you should be aware of.

While Formula One Group 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.