Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we’ll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at New York Times (NYSE:NYT) we aren’t jumping out of our chairs at how returns are trending, but let’s have a deeper 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. The formula for this calculation on New York Times is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.10 = US$173m ÷ (US$2.1b – US$426m) (Based on the trailing twelve months to September 2020).
Thus, New York Times has an ROCE of 10%. That’s a relatively normal return on capital, and it’s around the 9.4% generated by the Media industry.
View our latest analysis for New York Times
In the above chart we have measured New York Times’ 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 New York Times.
The Trend Of ROCE
Things have been pretty stable at New York Times, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn’t reinvesting in itself, so it’s plausible that it’s past the growth phase. So unless we see a substantial change at New York Times in terms of ROCE and additional investments being made, we wouldn’t hold our breath on it being a multi-bagger.
We can conclude that in regards to New York Times’ returns on capital employed and the trends, there isn’t much change to report on. Investors must think there’s better things to come because the stock has knocked it out of the park, delivering a 314% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn’t get our hopes up too high.
Like most companies, New York Times does come with some risks, and we’ve found 1 warning sign that you should be aware of.
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