Here's What To Make Of Liberty SiriusXM Group's (NASDAQ:LSXM.K) Decelerating Rates Of Return

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at Liberty SiriusXM Group (NASDAQ:LSXM.K) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. To calculate this metric for Liberty SiriusXM Group, this is the formula:

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

0.069 = US$1.9b ÷ (US$30b - US$3.3b) (Based on the trailing twelve months to March 2023).

Thus, Liberty SiriusXM Group has an ROCE of 6.9%. In absolute terms, that's a low return and it also under-performs the Media industry average of 9.7%.

View our latest analysis for Liberty SiriusXM Group

In the above chart we have measured Liberty SiriusXM Group'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 Liberty SiriusXM Group here for free.

So How Is Liberty SiriusXM Group's ROCE Trending?

There hasn't been much to report for Liberty SiriusXM Group's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Liberty SiriusXM Group doesn't end up being a multi-bagger in a few years time.

The Bottom Line

In a nutshell, Liberty SiriusXM Group has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 33% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Liberty SiriusXM Group does have some risks though, and we've spotted 2 warning signs for Liberty SiriusXM Group that you might be interested in.

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.

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.