We Like These Underlying Return On Capital Trends At Liberty TripAdvisor Holdings (NASDAQ:LTRP.A)

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Liberty TripAdvisor Holdings (NASDAQ:LTRP.A) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Liberty TripAdvisor Holdings is:

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

0.012 = US$50m ÷ (US$4.6b - US$576m) (Based on the trailing twelve months to September 2022).

Therefore, Liberty TripAdvisor Holdings has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 5.2%.

See our latest analysis for Liberty TripAdvisor Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Liberty TripAdvisor Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Liberty TripAdvisor Holdings' ROCE Trend?

It's great to see that Liberty TripAdvisor Holdings has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 1.2% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 41%. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

In Conclusion...

In the end, Liberty TripAdvisor Holdings has proven it's capital allocation skills are good with those higher returns from less amount of capital. And since the stock has dived 93% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

Like most companies, Liberty TripAdvisor Holdings does come with some risks, and we've found 1 warning sign that you should be aware of.

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.