DISH Network's (NASDAQ:DISH) Returns On Capital Not Reflecting Well On The Business
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after investigating DISH Network (NASDAQ:DISH), we don't think it's current trends fit the mold of a multi-bagger.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for DISH Network:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.063 = US$2.7b ÷ (US$50b - US$7.6b) (Based on the trailing twelve months to June 2022).
Therefore, DISH Network has an ROCE of 6.3%. In absolute terms, that's a low return but it's around the Media industry average of 7.4%.
Check out our latest analysis for DISH Network
Above you can see how the current ROCE for DISH Network 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 DISH Network.
So How Is DISH Network's ROCE Trending?
In terms of DISH Network's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.3% from 9.5% five years ago. However it looks like DISH Network might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.
The Bottom Line On DISH Network's ROCE
Bringing it all together, while we're somewhat encouraged by DISH Network's reinvestment in its own business, we're aware that returns are shrinking. Moreover, since the stock has crumbled 71% over the last five years, it appears investors are expecting the worst. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.
If you'd like to know about the risks facing DISH Network, we've discovered 3 warning signs that you should be aware of.
While DISH Network may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
