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Returns On Capital Signal Difficult Times Ahead For Qurate Retail (NASDAQ:QRTE.A)

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. So after glancing at the trends within Qurate Retail (NASDAQ:QRTE.A), we weren't too hopeful.

Understanding Return On Capital Employed (ROCE)

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 Qurate Retail:

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

0.06 = US$524m ÷ (US$11b - US$2.6b) (Based on the trailing twelve months to December 2023).

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Therefore, Qurate Retail has an ROCE of 6.0%. In absolute terms, that's a low return and it also under-performs the Multiline Retail industry average of 11%.

View our latest analysis for Qurate Retail

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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're interested, you can view the analysts predictions in our free analyst report for Qurate Retail .

The Trend Of ROCE

We are a bit anxious about the trends of ROCE at Qurate Retail. Unfortunately, returns have declined substantially over the last five years to the 6.0% we see today. What's equally concerning is that the amount of capital deployed in the business has shrunk by 37% over that same period. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. If these underlying trends continue, we wouldn't be too optimistic going forward.

What We Can Learn From Qurate Retail's ROCE

In summary, it's unfortunate that Qurate Retail is shrinking its capital base and also generating lower returns. We expect this has contributed to the stock plummeting 84% during the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Qurate Retail does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those are a bit concerning...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.