Returns On Capital At One Media iP Group (LON:OMIP) Paint A Concerning Picture
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at One Media iP Group (LON:OMIP) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for One Media iP Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.039 = UK£655k ÷ (UK£18m - UK£1.2m) (Based on the trailing twelve months to April 2023).
Therefore, One Media iP Group has an ROCE of 3.9%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 14%.
See our latest analysis for One Media iP Group
Historical performance is a great place to start when researching a stock so above you can see the gauge for One Media iP Group's ROCE against it's prior returns. If you're interested in investigating One Media iP Group's past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
In terms of One Media iP Group's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 3.9% from 8.3% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
In Conclusion...
While returns have fallen for One Media iP Group in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 24% in the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
If you want to continue researching One Media iP Group, you might be interested to know about the 3 warning signs that our analysis has discovered.
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.
