LGI Homes (LGIH)

Return on total capital

		Dec 31, 2024	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020
Earnings before interest and tax (EBIT)	US$ in thousands	—	233,255	390,107	547,698	364,710
Long-term debt	US$ in thousands	—	—	—	—	—
Total stockholders’ equity	US$ in thousands	2,037,230	1,856,030	1,642,410	1,395,850	1,139,000
Return on total capital		0.00%	12.57%	23.75%	39.24%	32.02%

December 31, 2024 calculation

Return on total capital = EBIT ÷ (Long-term debt + Total stockholders’ equity)
= $—K ÷ ($—K + $2,037,230K)
= 0.00%

LGI Homes' return on total capital has shown fluctuations over the past five years. In December 2020, the return on total capital stood at an impressive 32.02%, indicating efficient utilization of both debt and equity to generate profits. The trend continued to improve in December 2021, reaching 39.24%, reflecting a higher return relative to the total capital employed.

However, there was a significant drop in performance by December 2022, where the return on total capital decreased to 23.75%. This decline could be attributed to various factors, such as changes in market conditions or operational challenges. Furthermore, the return continued to decrease substantially in December 2023 to 12.57%, indicating a significant reduction in the profitability generated per unit of capital invested.

The most concerning development occurred by December 2024 when the return on total capital dropped to 0.00%, implying that the company did not generate any profit relative to the total capital deployed. This sharp decline raises red flags about the company's operational efficiency and capacity to generate returns for its investors.

Overall, LGI Homes' return on total capital has displayed fluctuations, with a notable decline in recent years, suggesting the need for a thorough evaluation of the company's operations and capital utilization strategies to improve profitability and investor returns.