TransUnion (NYSE:TRU) Will Want To Turn Around Its Return Trends

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 TransUnion (NYSE:TRU) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for TransUnion, this is the formula:

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

0.061 = US$659m ÷ (US$12b - US$906m) (Based on the trailing twelve months to December 2022).

Therefore, TransUnion has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 12%.

View our latest analysis for TransUnion

Above you can see how the current ROCE for TransUnion 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.

SWOT Analysis for TransUnion

So How Is TransUnion's ROCE Trending?

When we looked at the ROCE trend at TransUnion, we didn't gain much confidence. Around five years ago the returns on capital were 9.9%, but since then they've fallen to 6.1%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On TransUnion's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for TransUnion. In light of this, the stock has only gained 6.6% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

If you want to know some of the risks facing TransUnion we've found 3 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

While TransUnion 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.