Grindr's (NYSE:GRND) Returns On Capital Are Heading Higher

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Grindr (NYSE:GRND) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Grindr:

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

0.13 = US$50m ÷ (US$449m - US$67m) (Based on the trailing twelve months to September 2023).

Thus, Grindr has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Interactive Media and Services industry average of 9.0% it's much better.

See our latest analysis for Grindr

Historical performance is a great place to start when researching a stock so above you can see the gauge for Grindr's ROCE against it's prior returns. If you're interested in investigating Grindr's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Grindr has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 148% over the last two years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Grindr's ROCE

In summary, we're delighted to see that Grindr has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 57% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Grindr does have some risks though, and we've spotted 1 warning sign for Grindr that you might be interested in.

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.