Return Trends At Liberty SiriusXM Group (NASDAQ:LSXM.K) Aren't Appealing

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. In light of that, when we looked at Liberty SiriusXM Group (NASDAQ:LSXM.K) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Liberty SiriusXM Group is:

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

0.073 = US$1.9b ÷ (US$30b - US$3.9b) (Based on the trailing twelve months to December 2023).

Thus, Liberty SiriusXM Group has an ROCE of 7.3%. On its own, that's a low figure but it's around the 8.2% average generated by the Media industry.

Check out 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 for free.

How Are Returns Trending?

Over the past five years, Liberty SiriusXM Group's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Liberty SiriusXM Group to be a multi-bagger going forward.

Our Take On Liberty SiriusXM Group's ROCE

In summary, Liberty SiriusXM Group isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly then, the total return to shareholders over the last five years has been flat. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Liberty SiriusXM Group does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.

While Liberty SiriusXM Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.