There's Been No Shortage Of Growth Recently For Digital Turbine's (NASDAQ:APPS) Returns On Capital
What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. So on that note, Digital Turbine (NASDAQ:APPS) looks quite promising in regards to its trends of return on capital.
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. To calculate this metric for Digital Turbine, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = US$118m ÷ (US$1.4b - US$316m) (Based on the trailing twelve months to June 2022).
Thus, Digital Turbine has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Software industry.
Check out our latest analysis for Digital Turbine
Above you can see how the current ROCE for Digital Turbine 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 Digital Turbine here for free.
What Can We Tell From Digital Turbine's ROCE Trend?
We're delighted to see that Digital Turbine is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 11% on its capital. And unsurprisingly, like most companies trying to break into the black, Digital Turbine is utilizing 1,335% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
What We Can Learn From Digital Turbine's ROCE
To the delight of most shareholders, Digital Turbine has now broken into profitability. Since the stock has returned a staggering 788% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.
Like most companies, Digital Turbine does come with some risks, and we've found 4 warning signs that you should be aware of.
While Digital Turbine 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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