The Returns At Cinemark Holdings (NYSE:CNK) Aren't Growing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Cinemark Holdings (NYSE:CNK) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Cinemark Holdings:

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

0.088 = US$360m ÷ (US$4.8b - US$664m) (Based on the trailing twelve months to March 2024).

So, Cinemark Holdings has an ROCE of 8.8%. In absolute terms, that's a low return but it's around the Entertainment industry average of 11%.

See our latest analysis for Cinemark Holdings

In the above chart we have measured Cinemark Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Cinemark Holdings .

How Are Returns Trending?

Things have been pretty stable at Cinemark Holdings, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Cinemark Holdings doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that Cinemark Holdings has been paying out a decent 34% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line On Cinemark Holdings' ROCE

In a nutshell, Cinemark Holdings has been trudging along with the same returns from the same amount of capital over the last five years. And investors appear hesitant that the trends will pick up because the stock has fallen 54% in the last five years. Therefore based on the analysis done in this article, we don't think Cinemark Holdings has the makings of a multi-bagger.

Cinemark Holdings does have some risks though, and we've spotted 1 warning sign for Cinemark Holdings that you might be interested in.

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.