Yahoo Finance Liberty TripAdvisor Holdings (NASDAQ:LTRP.A) Is Looking To Continue Growing Its Returns On Capital
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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Liberty TripAdvisor Holdings' (NASDAQ:LTRP.A) returns on capital, so let's have a look.
Understanding 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. To calculate this metric for Liberty TripAdvisor Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.021 = US$84m ÷ (US$4.8b - US$853m) (Based on the trailing twelve months to June 2023).
So, Liberty TripAdvisor Holdings has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 6.9%.
Check out our latest analysis for Liberty TripAdvisor Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Liberty TripAdvisor Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Liberty TripAdvisor Holdings, check out these free graphs here.
What Does the ROCE Trend For Liberty TripAdvisor Holdings Tell Us?
While there are companies with higher returns on capital out there, we still find the trend at Liberty TripAdvisor Holdings promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 126% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
What We Can Learn From Liberty TripAdvisor Holdings' ROCE
As discussed above, Liberty TripAdvisor Holdings appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. However the stock is down a substantial 98% in the last five years so there could be other areas of the business hurting its prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.
One more thing to note, we've identified 2 warning signs with Liberty TripAdvisor Holdings and understanding these should be part of your investment process.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
