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Today, we will be looking at Alma Media Oyj (HEL: ALMA) to see if this is an attractive investment opportunity.
Specifically, we will calculate its return on capital employed (ROCE), hoping to get a glimpse of the sector.
First, we'll see what ROCE is and how we calculate it.
We will then compare its ROCE with similar companies.
Finally, we will examine the impact of its current liabilities on its ROCE.
What is return on capital used (ROCE)?
ROCE measures the "yield" (profit before tax) generated by a company from the capital used in its activity.
In general, companies with a higher ROCE are generally better.
Overall, it's a valuable metric that has its flaws.
Renowned investment researcher Michael Mauboussin suggested that a high ROCE could indicate that "a dollar invested in society generates more than a dollar".
So, how do we calculate ROCE?
Analysts use this formula to calculate the return on capital employed:
Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total Assets – Current Liabilities)
Or for Alma Media Oyj:
0.21 = 56 M € ÷ (395 M € – 121 M €) (based on the twelve months preceding March 2019)
So, Alma Media Oyj has a ROCE of 21%.
See our latest badysis for Alma Media Oyj
Does Alma Media Oyj have a good ROCE?
One way to evaluate ROCE is to compare similar businesses.
In our badysis, the ROCE of Alma Media Oyj is well above the average of 7.8% of the media sector.
We consider this to be positive because it suggests that it uses capital more efficiently than other similar companies.
Whatever the comparison of the sector, in absolute terms, the ROCE of Alma Media Oyj currently seems excellent.
As can be seen, Alma Media Oyj currently has a ROCE of 21% compared to its ROCE three years ago, which was 9.6%.
This leads us to wonder whether the company has reinvested wisely.
When reviewing this metric, keep in mind that this one is retrospective and not necessarily predictive.
Companies in cyclical industries may be difficult to understand with ROCE, as returns generally appear high during economic boom times and low during economic downturns.
Indeed, the ROCE only takes into account one year instead of taking into account the returns over a complete cycle.
Since the future is so important for investors, you should consult our free Analyst forecast report for Alma Media Oyj.
How the current liabilities of Alma Media Oyj affect its ROCE
Short-term (or short-term) liabilities are items such as supplier invoices, overdrafts or tax bills that must be paid within 12 months.
Due to the functioning of the ROCE equation, having large short-term bills can give the impression that the company is using less capital and therefore a higher ROCE than usual.
To remedy this, we check whether a company has a high short-term liability in relation to its total badets.
Alma Media Oyj has total liabilities of € 121 million and total badets of € 395 million.
As a result, its current liabilities represent approximately 31% of its total badets.
The ROCE of Alma Media Oyj is somewhat boosted by the insufficient amount of its current liabilities.
Alma Media ROCE's bottom line at Oyj
Even then, the return on investment is excellent and could be an interesting prospect for further research.
There could be better investments than Alma Media Oyj there, but you will have to work hard to find them . These promising companies with rapid revenue growth could be right in your driveway.
I like Alma Media Oyj better if I see major insider purchases. While we wait, look at this free list of growing companies with a considerable number of recent insiders.
Our goal is to provide you with a long-term research badysis based on fundamental data. Note that our badysis may not take into account the latest price sensitive business announcements or qualitative information.
If you notice an error that needs to be corrected, please contact the publisher at [email protected]. This article from Simply Wall St is of a general nature. This is not a recommendation to buy or sell shares, and does not take into account your goals or your financial situation. Simply Wall St has no position on the actions mentioned. Thanks for the reading.
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