Yahoo Finance SKY Network Television (NZSE:SKT) Is Doing The Right Things To Multiply Its Share Price
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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 SKY Network Television (NZSE:SKT) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on SKY Network Television is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = NZ$77m ÷ (NZ$667m - NZ$200m) (Based on the trailing twelve months to December 2023).
Thus, SKY Network Television has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 11% it's much better.
View our latest analysis for SKY Network Television
Above you can see how the current ROCE for SKY Network Television compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering SKY Network Television for free.
What Does the ROCE Trend For SKY Network Television Tell Us?
We're pretty happy with how the ROCE has been trending at SKY Network Television. We found that the returns on capital employed over the last five years have risen by 32%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Speaking of capital employed, the company is actually utilizing 64% less than it was five years ago, which can be indicative of a business that's improving its efficiency. SKY Network Television may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 30% of its operations, which isn't ideal. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.
The Key Takeaway
From what we've seen above, SKY Network Television has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 57% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
If you want to know some of the risks facing SKY Network Television we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
