Rush Street Interactive (NYSE:RSI) Is Experiencing Growth In Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in Rush Street Interactive's (NYSE:RSI) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Rush Street Interactive:

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

0.042 = US$8.7m ÷ (US$363m - US$156m) (Based on the trailing twelve months to September 2024).

Therefore, Rush Street Interactive has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 8.6%.

View our latest analysis for Rush Street Interactive

In the above chart we have measured Rush Street Interactive's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Rush Street Interactive .

What Does the ROCE Trend For Rush Street Interactive Tell Us?

We're delighted to see that Rush Street Interactive is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital three years ago. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 40%. Rush Street Interactive could be selling under-performing assets since the ROCE is improving.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 43% of the business, which is more than it was three years ago. And with current liabilities at those levels, that's pretty high.

Our Take On Rush Street Interactive's ROCE

From what we've seen above, Rush Street Interactive has managed to increase it's returns on capital all the while reducing it's capital base. Astute investors may have an opportunity here because the stock has declined 35% in the last three years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Like most companies, Rush Street Interactive does come with some risks, and we've found 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.