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What Do The Returns At Hemisphere Media Group (NASDAQ:HMTV) Mean Going Forward?

Simply Wall St
·3 min read

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Hemisphere Media Group's (NASDAQ:HMTV) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

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 Hemisphere Media Group:

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

0.09 = US$40m ÷ (US$487m - US$37m) (Based on the trailing twelve months to March 2020).

Therefore, Hemisphere Media Group has an ROCE of 9.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.3%.

Check out our latest analysis for Hemisphere Media Group


In the above chart we have a measured Hemisphere Media Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

Hemisphere Media Group's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 45% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

To bring it all together, Hemisphere Media Group has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 32% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing Hemisphere Media Group, we've discovered 1 warning sign that you should be aware of.

While Hemisphere Media Group 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.

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. 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.

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