In This Article:
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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Live Nation Entertainment (NYSE:LYV) and its ROCE trend, we weren't exactly thrilled.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Live Nation Entertainment:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.045 = US$353m ÷ (US$16b - US$8.6b) (Based on the trailing twelve months to June 2022).
Therefore, Live Nation Entertainment has an ROCE of 4.5%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 6.9%.
Check out our latest analysis for Live Nation Entertainment
Above you can see how the current ROCE for Live Nation Entertainment 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 report for Live Nation Entertainment.
What Does the ROCE Trend For Live Nation Entertainment Tell Us?
In terms of Live Nation Entertainment's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 4.5% for the last five years, and the capital employed within the business has risen 76% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
Another thing to note, Live Nation Entertainment has a high ratio of current liabilities to total assets of 53%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
Our Take On Live Nation Entertainment's ROCE
As we've seen above, Live Nation Entertainment's returns on capital haven't increased but it is reinvesting in the business. Yet to long term shareholders the stock has gifted them an incredible 152% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.