If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Upwork's (NASDAQ:UPWK) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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 Upwork is:

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

0.077 = US$60m ÷ (US$1.1b - US$284m) (Based on the trailing twelve months to September 2024).

So, Upwork has an ROCE of 7.7%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 15%.

Check out our latest analysis for Upwork

Above you can see how the current ROCE for Upwork compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Upwork .

The Trend Of ROCE

The fact that Upwork is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 7.7% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Upwork is utilizing 177% 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.

In Conclusion...

To the delight of most shareholders, Upwork has now broken into profitability. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 77% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Upwork looks impressive, no company is worth an infinite price. The intrinsic value infographic for UPWK helps visualize whether it is currently trading for a fair price.

While Upwork may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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