Here's What To Make Of CCC Intelligent Solutions Holdings' (NASDAQ:CCCS) Decelerating Rates Of Return

If you're looking for a multi-bagger, there's a few things to 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at CCC Intelligent Solutions Holdings (NASDAQ:CCCS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper 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 CCC Intelligent Solutions Holdings:

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

0.026 = US$78m ÷ (US$3.1b - US$147m) (Based on the trailing twelve months to September 2024).

Therefore, CCC Intelligent Solutions Holdings has an ROCE of 2.6%. Ultimately, that's a low return and it under-performs the Software industry average of 9.0%.

View our latest analysis for CCC Intelligent Solutions Holdings

Above you can see how the current ROCE for CCC Intelligent Solutions Holdings 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 analyst report for CCC Intelligent Solutions Holdings .

How Are Returns Trending?

There hasn't been much to report for CCC Intelligent Solutions Holdings' returns and its level of capital employed because both metrics have been steady for the past four years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if CCC Intelligent Solutions Holdings doesn't end up being a multi-bagger in a few years time.

The Bottom Line On CCC Intelligent Solutions Holdings' ROCE

In a nutshell, CCC Intelligent Solutions Holdings has been trudging along with the same returns from the same amount of capital over the last four years. Unsurprisingly then, the total return to shareholders over the last three years has been flat. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One more thing to note, we've identified 1 warning sign with CCC Intelligent Solutions Holdings and understanding it should be part of your investment process.

While CCC Intelligent Solutions Holdings 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.