We Like These Underlying Return On Capital Trends At Qurate Retail (NASDAQ:QRTE.A)

To find a multipacker stock, what are the underlying trends we should look for in a business? Typically, we will want to note a growth trend return on capital employed (ROCE) and along with that, an expansion base of capital employed. If you see this, it usually means it’s a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some big changes in Qurate Retail (NASDAQ:QRTE.A) returns on capital, so let’s take a look.

Return on Capital Employed (ROCE): What is it?

Just to clarify if you’re not sure, ROCE is a metric to assess the amount of pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Qurate Retail, this is the formula:

Return on Capital Employed = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)

0.089 = US$1.1 billion ÷ (US$15 billion – US$3.4 billion) (Based on the last twelve months to June 2022).

Therefore, Qurate Retail has a ROCE of 8.9%. In absolute terms, this is a poor return and is also below the online retail industry average of 14%.

Check out our latest analysis of Qurate Retail

NasdaqGS:QRTE.A Return on Capital Employed September 26, 2022

Above you can see how Qurate Retail’s current ROCE compares to its past returns on equity, but there’s not much I can say about the past. If you want to see what analysts are forecasting going forward, you should check out our free report for Qurate Retail.

So what is the ROCE trend of Qurate Retail?

Qurate Retail has not disappointed when it comes to ROCE growth. The figures show that in the last five years, the return on capital has grown by 64%. That is a very favorable trend because it means that the company is earning more per dollar of capital that is employed. Speaking of capital employed, the company is actually using 36% less than five years ago, which may be indicative of a business that is improving efficiency. A business that is shrinking its asset base like this is often not typical of a soon-to-be multipacker.

However, for the record, there was a notable increase in the company’s current liabilities during the period, so we would attribute some of the ROCE growth to that. Current liabilities have risen to 22% of total assets, so the business is now more financed by the likes of its suppliers or short-term creditors. This is worth keeping an eye on because as the percentage of current liabilities to total assets increases, so do some aspects of risk.

The bottom line

From what we have seen above, Qurate Retail has managed to increase its returns on capital while reducing its capital base. Given that the stock is down 48% in the last three years, this could be a good investment if the valuation and other metrics are also attractive. With that in mind, we believe the promising trends warrant this action for further investigation.

Qurate Retail has some risks, we note 5 warning signs (and 1 that bothers us a little) we think you should know about.

While Qurate Retail may not currently earn the highest returns, we have compiled a list of companies that currently earn over 25% return on equity. Look at this free list here.

This Simply Wall St article is of a general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock, and it does not take into account your goals or financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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