Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. So on that note, Clear Channel Outdoor Holdings (NYSE:CCO) looks quite promising in regards to its trends of return on capital.

What Is 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 Clear Channel Outdoor Holdings is:

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

0.077 = US$285m ÷ (US$4.5b - US$833m) (Based on the trailing twelve months to June 2024).

So, Clear Channel Outdoor Holdings has an ROCE of 7.7%. Ultimately, that's a low return and it under-performs the Media industry average of 9.7%.

In the above chart we have measured Clear Channel Outdoor Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Clear Channel Outdoor Holdings .

How Are Returns Trending?

You'd find it hard not to be impressed with the ROCE trend at Clear Channel Outdoor Holdings. We found that the returns on capital employed over the last five years have risen by 44%. The company is now earning US$0.08 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 30% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

In Conclusion...

From what we've seen above, Clear Channel Outdoor Holdings has managed to increase it's returns on capital all the while reducing it's capital base. And since the stock has fallen 45% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we found 2 warning signs for Clear Channel Outdoor Holdings (1 is significant) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.