Yahoo Finance Consensus Cloud Solutions (NASDAQ:CCSI) Is Achieving High Returns On Its Capital
What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Consensus Cloud Solutions' (NASDAQ:CCSI) returns on capital, so let's have 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$156m ÷ (US$627m - US$96m) (Based on the trailing twelve months to September 2022).
Thus, Consensus Cloud Solutions has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 10% earned by companies in a similar industry.
View 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 to see what analysts are forecasting going forward, you should check out our free report for Consensus Cloud Solutions.
How Are Returns Trending?
You'd find it hard not to be impressed with the ROCE trend at Consensus Cloud Solutions. We found that the returns on capital employed over the last two years have risen by 92%. The company is now earning US$0.3 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 58% less than it was two years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.
Our Take On Consensus Cloud Solutions' ROCE
From what we've seen above, Consensus Cloud Solutions has managed to increase it's returns on capital all the while reducing it's capital base. Astute investors may have an opportunity here because the stock has declined 12% in the last year. So researching this company further and determining whether or not these trends will continue seems justified.
One more thing: We've identified 3 warning signs with Consensus Cloud Solutions (at least 2 which are concerning) , and understanding them would certainly be useful.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
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