ZoomInfo Technologies (NASDAQ:ZI) Will Be Hoping To Turn Its Returns On Capital Around

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. 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. Although, when we looked at ZoomInfo Technologies (NASDAQ:ZI), it didn't seem to tick all of these boxes.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on ZoomInfo Technologies is:

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

0.034 = US$199m ÷ (US$6.5b - US$652m) (Based on the trailing twelve months to December 2024).

So, ZoomInfo Technologies has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 7.4%.

View our latest analysis for ZoomInfo Technologies

Above you can see how the current ROCE for ZoomInfo Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering ZoomInfo Technologies for free.

What The Trend Of ROCE Can Tell Us

In terms of ZoomInfo Technologies' historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 3.4% from 5.1% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On ZoomInfo Technologies' ROCE

To conclude, we've found that ZoomInfo Technologies is reinvesting in the business, but returns have been falling. It seems that investors have little hope of these trends getting any better and that may have partly contributed to the stock collapsing 82% in the last three years. Therefore based on the analysis done in this article, we don't think ZoomInfo Technologies has the makings of a multi-bagger.

ZoomInfo Technologies does have some risks though, and we've spotted 4 warning signs for ZoomInfo Technologies that you might be interested in.

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.