To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. 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 comScore's (NASDAQ:SCOR) returns on capital, so let's have a look.

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

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 comScore is:

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

0.047 = US$13m ÷ (US$412m - US$144m) (Based on the trailing twelve months to September 2024).

Thus, comScore has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Media industry average of 9.6%.

Check out our latest analysis for comScore

In the above chart we have measured comScore's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for comScore .

What Does the ROCE Trend For comScore Tell Us?

We're delighted to see that comScore is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 4.7% which is no doubt a relief for some early shareholders. In regards to capital employed, comScore is using 50% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. This could potentially mean that the company is selling some of its assets.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 35% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Key Takeaway

From what we've seen above, comScore has managed to increase it's returns on capital all the while reducing it's capital base. Although the company may be facing some issues elsewhere since the stock has plunged 93% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

On a final note, we've found 3 warning signs for comScore that we think you should be aware of.

While comScore 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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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.