Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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 TEGNA (NYSE:TGNA) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on TEGNA is:

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

0.099 = US$663m ÷ (US$7.2b - US$467m) (Based on the trailing twelve months to September 2024).

Therefore, TEGNA has an ROCE of 9.9%. Even though it's in line with the industry average of 9.6%, it's still a low return by itself.

Above you can see how the current ROCE for TEGNA 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 TEGNA .

What Does the ROCE Trend For TEGNA Tell Us?

Over the past five years, TEGNA's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at TEGNA in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On TEGNA's ROCE

In a nutshell, TEGNA has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 26% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

TEGNA does have some risks, we noticed 4 warning signs (and 2 which are a bit unpleasant) we think you should know about.

While TEGNA 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.