Returns On Capital Are Showing Encouraging Signs At Integral Ad Science Holding (NASDAQ:IAS)
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Integral Ad Science Holding's (NASDAQ:IAS) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Integral Ad Science Holding is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.012 = US$13m ÷ (US$1.2b - US$59m) (Based on the trailing twelve months to June 2023).
Therefore, Integral Ad Science Holding has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Media industry average of 8.5%.
Check out our latest analysis for Integral Ad Science Holding
Above you can see how the current ROCE for Integral Ad Science Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Integral Ad Science Holding here for free.
What The Trend Of ROCE Can Tell Us
We're delighted to see that Integral Ad Science Holding is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses three years ago, but now it's earning 1.2% which is a sight for sore eyes. Not only that, but the company is utilizing 33% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Key Takeaway
In summary, it's great to see that Integral Ad Science Holding has managed to break into profitability and is continuing to reinvest in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 68% return over the last year. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you'd like to know about the risks facing Integral Ad Science Holding, we've discovered 2 warning signs that you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
