Why The 24% Return On Capital At Consensus Cloud Solutions (NASDAQ:CCSI) Should Have Your Attention
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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)
0.24 = US$152m ÷ (US$707m - US$85m) (Based on the trailing twelve months to September 2023).
So, Consensus Cloud Solutions has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Software industry average of 8.5%.
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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
How Are Returns Trending?
Consensus Cloud Solutions has not disappointed in regards to ROCE growth. The figures show that over the last three years, returns on capital have grown by 60%. The company is now earning US$0.2 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 51% less capital than it was three years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.
What We Can Learn From 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. And since the stock has fallen 63% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
Like most companies, Consensus Cloud Solutions does come with some risks, and we've found 2 warning signs that you should be aware of.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.
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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.
