Investors Should Be Encouraged By Consensus Cloud Solutions' (NASDAQ:CCSI) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, the ROCE of Consensus Cloud Solutions (NASDAQ:CCSI) looks great, so lets see what the trend can tell us.

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. The formula for this calculation on Consensus Cloud Solutions is:

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

0.29 = US$156m ÷ (US$627m - US$96m) (Based on the trailing twelve months to September 2022).

So, Consensus Cloud Solutions has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Software industry average of 10%.

View our latest analysis for Consensus Cloud Solutions

Above you can see how the current ROCE for Consensus Cloud Solutions 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 report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

You'd find it hard not to be impressed with the ROCE trend at Consensus Cloud Solutions. The data shows that returns on capital have increased by 92% over the trailing two years. The company is now earning US$0.3 per dollar of capital employed. In regards to capital employed, Consensus Cloud Solutions appears to been achieving more with less, since the business is using 58% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Bottom Line On Consensus Cloud Solutions' ROCE

In summary, it's great to see that Consensus Cloud Solutions has been able to turn things around and earn higher returns on lower amounts of capital. Considering the stock has delivered 6.7% to its stockholders over the last year, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Consensus Cloud Solutions (of which 2 make us uncomfortable!) that you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.