U.S. Markets closed

Is Lindblad Expeditions Holdings, Inc. (NASDAQ:LIND) Creating Value For Shareholders?

Simply Wall St

Today we'll evaluate Lindblad Expeditions Holdings, Inc. (NASDAQ:LIND) to determine whether it could have potential as an investment idea. To be precise, we'll consider its Return On Capital Employed (ROCE), as that will inform our view of the quality of the business.

First, we'll go over how we calculate ROCE. Then we'll compare its ROCE to similar companies. Then we'll determine how its current liabilities are affecting its ROCE.

What is Return On Capital Employed (ROCE)?

ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Generally speaking a higher ROCE is better. In brief, it is a useful tool, but it is not without drawbacks. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.

So, How Do We Calculate ROCE?

Analysts use this formula to calculate return on capital employed:

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

Or for Lindblad Expeditions Holdings:

0.083 = US$31m ÷ (US$530m - US$161m) (Based on the trailing twelve months to September 2019.)

Therefore, Lindblad Expeditions Holdings has an ROCE of 8.3%.

Check out our latest analysis for Lindblad Expeditions Holdings

Is Lindblad Expeditions Holdings's ROCE Good?

One way to assess ROCE is to compare similar companies. It appears that Lindblad Expeditions Holdings's ROCE is fairly close to the Hospitality industry average of 8.5%. Separate from how Lindblad Expeditions Holdings stacks up against its industry, its ROCE in absolute terms is mediocre; relative to the returns on government bonds. Readers may find more attractive investment prospects elsewhere.

Our data shows that Lindblad Expeditions Holdings currently has an ROCE of 8.3%, compared to its ROCE of 6.4% 3 years ago. This makes us think about whether the company has been reinvesting shrewdly. The image below shows how Lindblad Expeditions Holdings's ROCE compares to its industry, and you can click it to see more detail on its past growth.

NasdaqCM:LIND Past Revenue and Net Income, January 2nd 2020

When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. Companies in cyclical industries can be difficult to understand using ROCE, as returns typically look high during boom times, and low during busts. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. Since the future is so important for investors, you should check out our free report on analyst forecasts for Lindblad Expeditions Holdings.

What Are Current Liabilities, And How Do They Affect Lindblad Expeditions Holdings's ROCE?

Short term (or current) liabilities, are things like supplier invoices, overdrafts, or tax bills that need to be paid within 12 months. Due to the way ROCE is calculated, a high level of current liabilities makes a company look as though it has less capital employed, and thus can (sometimes unfairly) boost the ROCE. To counter this, investors can check if a company has high current liabilities relative to total assets.

Lindblad Expeditions Holdings has total assets of US$530m and current liabilities of US$161m. As a result, its current liabilities are equal to approximately 30% of its total assets. Lindblad Expeditions Holdings's middling level of current liabilities have the effect of boosting its ROCE a bit.

What We Can Learn From Lindblad Expeditions Holdings's ROCE

With this level of liabilities and a mediocre ROCE, there are potentially better investments out there. Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.