Be Wary Of ZoomInfo Technologies (NASDAQ:ZI) And Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. Having said that, from a first glance at ZoomInfo Technologies (NASDAQ:ZI) 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. To calculate this metric for ZoomInfo Technologies, this is the formula:

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

0.043 = US$270m ÷ (US$6.9b - US$638m) (Based on the trailing twelve months to December 2023).

Therefore, ZoomInfo Technologies has an ROCE of 4.3%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 6.4%.

View our latest analysis for ZoomInfo Technologies

In the above chart we have measured ZoomInfo Technologies' 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 ZoomInfo Technologies for free.

What Can We Tell From ZoomInfo Technologies' ROCE Trend?

On the surface, the trend of ROCE at ZoomInfo Technologies doesn't inspire confidence. To be more specific, ROCE has fallen from 6.4% 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. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On ZoomInfo Technologies' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that ZoomInfo Technologies is reinvesting for growth and has higher sales as a result. Despite these promising trends, the stock has collapsed 71% over the last three years, so there could be other factors hurting the company's prospects. Therefore, we'd suggest researching the stock further to uncover more about the business.

While ZoomInfo Technologies doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for ZI on our platform.

While ZoomInfo Technologies 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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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.