There Are Reasons To Feel Uneasy About ICF International's (NASDAQ:ICFI) Returns On Capital

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. Having said that, from a first glance at ICF International (NASDAQ:ICFI) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding 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. Analysts use this formula to calculate it for ICF International:

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

0.07 = US$121m ÷ (US$2.1b - US$352m) (Based on the trailing twelve months to March 2023).

Therefore, ICF International has an ROCE of 7.0%. Ultimately, that's a low return and it under-performs the Professional Services industry average of 12%.

See our latest analysis for ICF International

Above you can see how the current ROCE for ICF International 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.

So How Is ICF International's ROCE Trending?

On the surface, the trend of ROCE at ICF International doesn't inspire confidence. To be more specific, ROCE has fallen from 9.2% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On ICF International's ROCE

While returns have fallen for ICF International in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 75% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

ICF International does have some risks though, and we've spotted 1 warning sign for ICF International that you might be interested in.

While ICF International 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.