The Returns On Capital At ICF International (NASDAQ:ICFI) Don't Inspire Confidence
There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at ICF International (NASDAQ:ICFI), it didn't seem to tick all of these boxes.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on ICF International is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.07 = US$121m ÷ (US$2.1b - US$352m) (Based on the trailing twelve months to March 2023).
Thus, ICF International has an ROCE of 7.0%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 12%.
View our latest analysis for ICF International
In the above chart we have measured ICF International's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
How Are Returns Trending?
On the surface, the trend of ROCE at ICF International doesn't inspire confidence. Over the last five years, returns on capital have decreased to 7.0% from 9.2% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
The Bottom Line On ICF International's ROCE
In summary, despite lower returns in the short term, we're encouraged to see that ICF International is reinvesting for growth and has higher sales as a result. Furthermore the stock has climbed 79% over the last five years, it would appear that investors are upbeat about the future. So should these growth trends continue, we'd be optimistic on the stock going forward.
Like most companies, ICF International does come with some risks, and we've found 1 warning sign that you should be aware of.
While ICF International isn't earning the highest return, check out this free list of companies that are 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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