Investors Will Want TransUnion's (NYSE:TRU) Growth In ROCE To Persist

By
Simply Wall St
Published
October 17, 2021
NYSE:TRU
Source: Shutterstock

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. With that in mind, we've noticed some promising trends at TransUnion (NYSE:TRU) so let's look a bit deeper.

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. Analysts use this formula to calculate it for TransUnion:

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

0.11 = US$715m ÷ (US$7.4b - US$602m) (Based on the trailing twelve months to June 2021).

So, TransUnion has an ROCE of 11%. By itself that's a normal return on capital and it's in line with the industry's average returns of 11%.

Check out our latest analysis for TransUnion

roce
NYSE:TRU Return on Capital Employed October 18th 2021

In the above chart we have measured TransUnion's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering TransUnion here for free.

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from TransUnion. Over the last five years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 54%. So we're very much inspired by what we're seeing at TransUnion thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that TransUnion is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 260% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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

While TransUnion 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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