Returns On Capital Are Showing Encouraging Signs At Liberty SiriusXM Group (NASDAQ:LSXM.K)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Liberty SiriusXM Group (NASDAQ:LSXM.K) so let's look a bit deeper.

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)

0.074 = US$2.0b ÷ (US$32b - US$5.2b) (Based on the trailing twelve months to December 2021).

Therefore, Liberty SiriusXM Group has an ROCE of 7.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.9%.

View our latest analysis for Liberty SiriusXM Group

Above you can see how the current ROCE for Liberty SiriusXM Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Liberty SiriusXM Group.

What The Trend Of ROCE Can Tell Us

Liberty SiriusXM Group's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 33% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Liberty SiriusXM Group's ROCE

As discussed above, Liberty SiriusXM Group appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 2.7% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Liberty SiriusXM Group does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

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.

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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.