What Can We Learn From Dover Motorsports, Inc.s (NYSE:DVD) Investment Returns? – Simply Wall St

Posted: April 19, 2020 at 2:50 pm


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Today we are going to look at Dover Motorsports, Inc. (NYSE:DVD) to see whether it might be an attractive investment prospect. Specifically, were going to calculate its Return On Capital Employed (ROCE), in the hopes of getting some insight into the business.

First of all, well work out how to calculate ROCE. Then well compare its ROCE to similar companies. And finally, well look at how its current liabilities are impacting its ROCE.

ROCE measures the return (pre-tax profit) a company generates from capital employed in its business. All else being equal, a better business will have a higher ROCE. Ultimately, it is a useful but imperfect metric. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since No two businesses are exactly alike.

Analysts use this formula to calculate return on capital employed:

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

Or for Dover Motorsports:

0.078 = US$6.1m (US$82m US$4.8m) (Based on the trailing twelve months to December 2019.)

Therefore, Dover Motorsports has an ROCE of 7.8%.

View our latest analysis for Dover Motorsports

ROCE is commonly used for comparing the performance of similar businesses. It appears that Dover Motorsportss ROCE is fairly close to the Hospitality industry average of 8.5%. Aside from the industry comparison, Dover Motorsportss ROCE is mediocre in absolute terms, considering the risk of investing in stocks versus the safety of a bank account. Investors may wish to consider higher-performing investments.

The image below shows how Dover Motorsportss ROCE compares to its industry, and you can click it to see more detail on its past growth.

When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. ROCE can be misleading for companies in cyclical industries, with returns looking impressive during the boom times, but very weak during the busts. ROCE is only a point-in-time measure. How cyclical is Dover Motorsports? You can see for yourself by looking at this free graph of past earnings, revenue and cash flow.

Current liabilities include invoices, such as supplier payments, short-term debt, or a tax bill, that need to be paid within 12 months. Due to the way the ROCE equation works, having large bills due in the near term can make it look as though a company has less capital employed, and thus a higher ROCE than usual. To check the impact of this, we calculate if a company has high current liabilities relative to its total assets.

Dover Motorsports has current liabilities of US$4.8m and total assets of US$82m. Therefore its current liabilities are equivalent to approximately 5.8% of its total assets. With low levels of current liabilities, at least Dover Motorsportss mediocre ROCE is not unduly boosted.

If performance improves, then Dover Motorsports may be an OK investment, especially at the right valuation. You might be able to find a better investment than Dover Motorsports. If you want a selection of possible winners, check out this free list of interesting companies that trade on a P/E below 20 (but have proven they can grow earnings).

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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What Can We Learn From Dover Motorsports, Inc.s (NYSE:DVD) Investment Returns? - Simply Wall St

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April 19th, 2020 at 2:50 pm

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