What are the first trends to look for to identify a title that could multiply over the long term? In a perfect world, we would like a business to invest more capital in their business, and ideally the returns from that capital increase as well. Put simply, these types of businesses are dialing machines, which means they continually reinvest their profits at ever higher rates of return. Although, when we considered ZoomInfo Technologies (NASDAQ: ZI), he didn’t seem to tick all of those boxes.
What is Return on Employee Capital (ROCE)?
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return), relative to the capital employed in the company. To calculate this metric for ZoomInfo Technologies, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.032 = $ 70 million ÷ ($ 2.5 billion – $ 348 million) (Based on the last twelve months up to March 2021).
Therefore, ZoomInfo Technologies has a ROCE of 3.2%. In the end, that’s a low return, and it’s below the interactive media and services industry average of 8.1%.
Check out our latest review for ZoomInfo Technologies
In the graph above, we measured ZoomInfo Technologies past ROCE versus past performance, but the future is arguably more important. If you’d like to see what analysts are forecasting for the future, you should check out our free report for ZoomInfo Technologies.
What does the ROCE trend of ZoomInfo technologies tell us?
In terms of ZoomInfo Technologies’ historic ROCE movements, the trend is not great. About two years ago, returns on capital were 5.3%, but since then they have fallen to 3.2%. However, as both capital employed and income have increased, it appears that the company is currently continuing to grow, resulting in short-term returns. If these investments prove to be successful, it can bode very well for stock performance in the long run.
The key to take away
In summary, despite lower returns in the short term, we are encouraged to see that ZoomInfo Technologies is reinvesting for growth and therefore has higher sales. And the stock followed suit, returning 28% to shareholders in the past year. So if these growth trends continue, we would be optimistic about the future of the title.
ZoomInfo Technologies presents certain risks, however, and we have identified 1 warning sign for ZoomInfo Technologies that might interest you.
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