Capital Allocation Trends At Entravision Communications (NYSE:EVC) Aren't Ideal

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. On that note, looking into Entravision Communications (NYSE:EVC), we weren't too upbeat about how things were going.

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 Entravision Communications:

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

0.0058 = US$2.9m ÷ (US$570m - US$67m) (Based on the trailing twelve months to June 2024).

So, Entravision Communications has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Media industry average of 10%.

View our latest analysis for Entravision Communications

Historical performance is a great place to start when researching a stock so above you can see the gauge for Entravision Communications' ROCE against it's prior returns. If you'd like to look at how Entravision Communications has performed in the past in other metrics, you can view this free graph of Entravision Communications' past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Entravision Communications' historical ROCE trend, it isn't fantastic. The company used to generate 5.6% on its capital five years ago but it has since fallen noticeably. What's equally concerning is that the amount of capital deployed in the business has shrunk by 21% over that same period. The fact that both are shrinking is an indication that the business is going through some tough times. If these underlying trends continue, we wouldn't be too optimistic going forward.

In Conclusion...

In summary, it's unfortunate that Entravision Communications is shrinking its capital base and also generating lower returns. And long term shareholders have watched their investments stay flat over the last five years. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Entravision Communications (including 1 which doesn't sit too well with us) .

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.