There's Been No Shortage Of Growth Recently For Qurate Retail's (NASDAQ:QRTE.A) Returns On Capital
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Qurate Retail (NASDAQ:QRTE.A) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What is it?
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. The formula for this calculation on Qurate Retail is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = US$1.7b ÷ (US$17b - US$4.2b) (Based on the trailing twelve months to March 2021).
So, Qurate Retail has an ROCE of 14%. That's a pretty standard return and it's in line with the industry average of 14%.
View our latest analysis for Qurate Retail
In the above chart we have measured Qurate Retail's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Qurate Retail.
What Does the ROCE Trend For Qurate Retail Tell Us?
Qurate Retail has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 112% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 26% less than it was five years ago, which can be indicative of a business that's improving its efficiency. Qurate Retail may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
In Conclusion...
In summary, it's great to see that Qurate Retail has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has returned a solid 23% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
One more thing: We've identified 3 warning signs with Qurate Retail (at least 1 which is concerning) , and understanding them would certainly be useful.
While Qurate Retail 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.
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