If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Trade Desk (NASDAQ:TTD) looks decent, right now, so lets see what the trend of returns can tell us.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Trade Desk:

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

0.13 = US$376m ÷ (US$5.5b - US$2.6b) (Based on the trailing twelve months to September 2024).

Therefore, Trade Desk has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 9.7% it's much better.

Check out our latest analysis for Trade Desk

Above you can see how the current ROCE for Trade Desk 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 Trade Desk .

What Does the ROCE Trend For Trade Desk Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 307% in that time. 13% is a pretty standard return, and it provides some comfort knowing that Trade Desk has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a separate but related note, it's important to know that Trade Desk has a current liabilities to total assets ratio of 48%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

In the end, Trade Desk has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 323% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Trade Desk could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for TTD on our platform quite valuable.

While Trade Desk 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.