Yahoo Finance Investors Will Want Qurate Retail's (NASDAQ:QRTE.A) Growth In ROCE To Persist
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Qurate Retail (NASDAQ:QRTE.A) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for Qurate Retail:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.089 = US$1.1b ÷ (US$15b - US$3.4b) (Based on the trailing twelve months to June 2022).
Thus, Qurate Retail has an ROCE of 8.9%. Ultimately, that's a low return and it under-performs the Online Retail industry average of 13%.
See our latest analysis for Qurate Retail
Above you can see how the current ROCE for Qurate Retail 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 Qurate Retail.
How Are Returns Trending?
Qurate Retail has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 64%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 36% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 22% of its operations, which isn't ideal. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.
The Bottom Line On Qurate Retail's ROCE
From what we've seen above, Qurate Retail has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 51% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.
Qurate Retail does have some risks, we noticed 5 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
While Qurate Retail isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
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