Yahoo Finance 17LIVE Group (SGX:LVR) Is Looking To Continue Growing Its Returns On Capital
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. With that in mind, we've noticed some promising trends at 17LIVE Group (SGX:LVR) so let's look a bit deeper.
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. The formula for this calculation on 17LIVE Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = US$14m ÷ (US$164m - US$70m) (Based on the trailing twelve months to December 2023).
So, 17LIVE Group has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Entertainment industry average of 7.2% it's much better.
See our latest analysis for 17LIVE Group
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of 17LIVE Group.
So How Is 17LIVE Group's ROCE Trending?
The fact that 17LIVE Group is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 15% on its capital. In addition to that, 17LIVE Group is employing 129% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
On a related note, the company's ratio of current liabilities to total assets has decreased to 43%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.
The Bottom Line On 17LIVE Group's ROCE
In summary, it's great to see that 17LIVE Group has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 69% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
One final note, you should learn about the 3 warning signs we've spotted with 17LIVE Group (including 2 which are concerning) .
While 17LIVE Group 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.
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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.
