We Like Fair Isaac's (NYSE:FICO) Returns And Here's How They're Trending

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Fair Isaac (NYSE:FICO) we really liked what we saw.

What Is 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. To calculate this metric for Fair Isaac, this is the formula:

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

0.50 = US$689m ÷ (US$1.7b - US$315m) (Based on the trailing twelve months to March 2024).

So, Fair Isaac has an ROCE of 50%. That's a fantastic return and not only that, it outpaces the average of 7.2% earned by companies in a similar industry.

Check out our latest analysis for Fair Isaac

Above you can see how the current ROCE for Fair Isaac 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 Fair Isaac .

What The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Fair Isaac. The data shows that returns on capital have increased substantially over the last five years to 50%. The amount of capital employed has increased too, by 56%. So we're very much inspired by what we're seeing at Fair Isaac thanks to its ability to profitably reinvest capital.

One more thing to note, Fair Isaac has decreased current liabilities to 19% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Fair Isaac has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Fair Isaac's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Fair Isaac has. Since the stock has returned a staggering 389% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 2 warning signs with Fair Isaac and understanding these should be part of your investment process.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.