What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in TaskUs' (NASDAQ:TASK) returns on capital, so let's have a look.
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. Analysts use this formula to calculate it for TaskUs:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = US$110m ÷ (US$942m - US$139m) (Based on the trailing twelve months to September 2024).
So, TaskUs has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 15% generated by the Professional Services industry.
In the above chart we have measured TaskUs' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering TaskUs for free.
What Does the ROCE Trend For TaskUs Tell Us?
We like the trends that we're seeing from TaskUs. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 43%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
What We Can Learn From TaskUs' ROCE
All in all, it's terrific to see that TaskUs is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 68% in the last three years. So researching this company further and determining whether or not these trends will continue seems justified.
On a final note, we've found 1 warning sign for TaskUs that we think 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.
