Yahoo Finance Thryv Holdings (NASDAQ:THRY) Could Be At Risk Of Shrinking As A Company
What financial metrics can indicate to us that a company is maturing or even in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. And from a first read, things don't look too good at Thryv Holdings (NASDAQ:THRY), so let's see why.
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. The formula for this calculation on Thryv Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$81m ÷ (US$787m - US$240m) (Based on the trailing twelve months to March 2024).
Thus, Thryv Holdings has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 11% generated by the Media industry.
View our latest analysis for Thryv Holdings
Above you can see how the current ROCE for Thryv Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Thryv Holdings .
The Trend Of ROCE
In terms of Thryv Holdings' historical ROCE trend, it isn't fantastic. To be more specific, today's ROCE was 20% five years ago but has since fallen to 15%. On top of that, the business is utilizing 62% less capital within its operations. The fact that both are shrinking is an indication that the business is going through some tough times. If these underlying trends continue, we wouldn't be too optimistic going forward.
On a side note, Thryv Holdings' current liabilities have increased over the last five years to 30% of total assets, effectively distorting the ROCE to some degree. Without this increase, it's likely that ROCE would be even lower than 15%. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.
The Bottom Line
In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Investors haven't taken kindly to these developments, since the stock has declined 47% from where it was three years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
On a separate note, we've found 1 warning sign for Thryv Holdings you'll probably want to know about.
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.
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