iHeartMedia (NASDAQ:IHRT) Will Be Looking To Turn Around Its Returns

When researching a stock for investment, what can tell us that the company is in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. So after glancing at the trends within iHeartMedia (NASDAQ:IHRT), we weren't too hopeful.

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What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for iHeartMedia, this is the formula:

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

0.038 = US$170m ÷ (US$5.3b - US$730m) (Based on the trailing twelve months to March 2025).

So, iHeartMedia has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Media industry average of 8.6%.

See our latest analysis for iHeartMedia

In the above chart we have measured iHeartMedia's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for iHeartMedia .

What The Trend Of ROCE Can Tell Us

We are a bit anxious about the trends of ROCE at iHeartMedia. To be more specific, today's ROCE was 5.6% five years ago but has since fallen to 3.8%. In addition to that, iHeartMedia is now employing 48% less capital than it was five years ago. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. If these underlying trends continue, we wouldn't be too optimistic going forward.

The Bottom Line On iHeartMedia's ROCE

To see iHeartMedia reducing the capital employed in the business in tandem with diminishing returns, is concerning. We expect this has contributed to the stock plummeting 71% during the last five years. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you want to continue researching iHeartMedia, you might be interested to know about the 2 warning signs that our analysis has discovered.

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.

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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.