The Trend Of High Returns At Truecaller (STO:TRUE B) Has Us Very Interested

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Truecaller's (STO:TRUE B) returns on capital, so let's have 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 Truecaller is:

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

0.35 = kr689m ÷ (kr2.3b - kr371m) (Based on the trailing twelve months to December 2022).

So, Truecaller has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Software industry average of 11%.

View our latest analysis for Truecaller

Above you can see how the current ROCE for Truecaller compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Truecaller Tell Us?

Truecaller has recently broken into profitability so their prior investments seem to be paying off. About three years ago the company was generating losses but things have turned around because it's now earning 35% on its capital. Not only that, but the company is utilizing 790% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Truecaller's ROCE

Long story short, we're delighted to see that Truecaller's reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 57% in the last year. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to continue researching Truecaller, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.