Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Consensus Cloud Solutions' (NASDAQ:CCSI) look very promising so lets take a look.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Consensus Cloud Solutions is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.29 = US$149m ÷ (US$602m - US$79m) (Based on the trailing twelve months to December 2024).
So, Consensus Cloud Solutions has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 9.2% earned by companies in a similar industry.
Check out our latest analysis for Consensus Cloud Solutions
In the above chart we have measured Consensus Cloud Solutions' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Consensus Cloud Solutions for free.
What Can We Tell From Consensus Cloud Solutions' ROCE Trend?
We're pretty happy with how the ROCE has been trending at Consensus Cloud Solutions. We found that the returns on capital employed over the last five years have risen by 87%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 58% less capital than it was five years ago. Consensus Cloud Solutions may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
What We Can Learn From Consensus Cloud Solutions' ROCE
In a nutshell, we're pleased to see that Consensus Cloud Solutions has been able to generate higher returns from less capital. And since the stock has fallen 61% over the last three years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
Consensus Cloud Solutions does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...
Consensus Cloud Solutions is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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