Returns At Liberty SiriusXM Group (NASDAQ:LSXM.K) Are On The Way Up

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Speaking of which, we noticed some great changes in Liberty SiriusXM Group's (NASDAQ:LSXM.K) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Liberty SiriusXM Group:

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

0.067 = US$1.9b ÷ (US$33b - US$4.4b) (Based on the trailing twelve months to June 2021).

Thus, Liberty SiriusXM Group has an ROCE of 6.7%. In absolute terms, that's a low return and it also under-performs the Media industry average of 9.3%.

See 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Liberty SiriusXM Group Tell Us?

Liberty SiriusXM Group's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 29% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Liberty SiriusXM Group's ROCE

To sum it up, Liberty SiriusXM Group is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 49% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Liberty SiriusXM Group can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with Liberty SiriusXM Group and understanding this should be part of your investment process.

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.

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.

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