Six Flags Entertainment’s (NYSE:SIX) Returns on Capital Tell Us There’s Reason to Be Nervous

To avoid investing in a declining business, there are some financial indicators that can provide early signs of aging.A business in decline usually has two underlying trends, first, a recession return Capital employed (ROCE) and decline according to capital employed. Basically, the company’s investment income is decreasing, while also reducing its total assets.In view of this, at first glance six flags entertainment (NYSE ticker symbol: VI), we found some indications that it might be struggling, so let’s investigate.

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

For those who don’t know, ROCE is a measure of a company’s annual pre-tax profits (its return) relative to the capital employed in the business. To calculate this metric for Six Flags Entertainment, use the following formula:

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

0.18 = $385 million ÷ ($2.7 – $514 million) (Based on last twelve months to April 2023).

so, Six Flags Entertainment has an ROCE of 18%. That’s a satisfying return in absolute terms, but it compares considerably better to the hotel industry average of 9.1%.

Check out our latest analysis for Six Flags Entertainment

In the graph above, we measure Six Flags’ previous ROCE against its previous performance, but arguably the future is more important.If you want, check out the Six Flags Entertainment analysts’ forecasts here for free.

Six Flags Entertainment Inc SWOT Analysis

What Can We See From Six Flags Entertainment’s ROCE Trend?

Given the downward trend in returns, there are reasons to be cautious about Six Flags Entertainment. About five years ago, the return on capital was 25%, but it is now significantly lower than what we saw above. Most importantly, it is worth noting that the amount of capital employed within businesses has remained relatively constant. Companies exhibiting these attributes tend not to shrink, but they may mature and face pressure from competition to profit. If these trends continue, we don’t expect Six Flags Entertainment to become a diversified company.

key points

All in all, lower returns using the same amount of capital is not exactly a sign of a compounding machine. Investors haven’t taken kindly to these developments, as the stock has fallen 58% from five years ago. Since the underlying trends in these areas aren’t great, we’ll consider looking elsewhere.

Six Flags Entertainment does have some risks, we’ve discovered 2 Warning Signs for Six Flags Entertainment You might be interested.

While Six Flags Entertainment may not have the highest rate of return right now, we’ve compiled a list of companies that currently have a return on equity of over 25%.check it out free List here.

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This article by Simply Wall St is general in nature. We use only an unbiased methodology to provide reviews based on historical data and analyst forecasts, 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 into account your objectives or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any of the stocks mentioned.