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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Sportradar Group (NASDAQ:SRAD) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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. To calculate this metric for Sportradar Group, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.057 = €109m ÷ (€2.3b - €369m) (Based on the trailing twelve months to September 2024).

Thus, Sportradar Group has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 9.1%.

See our latest analysis for Sportradar Group

In the above chart we have measured Sportradar Group'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 analyst report for Sportradar Group .

What Can We Tell From Sportradar Group's ROCE Trend?

There are better returns on capital out there than what we're seeing at Sportradar Group. Over the past four years, ROCE has remained relatively flat at around 5.7% and the business has deployed 174% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

As we've seen above, Sportradar Group's returns on capital haven't increased but it is reinvesting in the business. And with the stock having returned a mere 4.6% in the last three years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you're still interested in Sportradar Group it's worth checking out our FREE intrinsic value approximation for SRAD to see if it's trading at an attractive price in other respects.

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.