Consensus Cloud Solutions (NASDAQ:CCSI) Is Achieving High Returns On Its Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Speaking of which, we noticed some great changes in Consensus Cloud Solutions' (NASDAQ:CCSI) returns on capital, so let's have a look.

Understanding 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. To calculate this metric for Consensus Cloud Solutions, this is the formula:

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

0.25 = US$147m ÷ (US$663m - US$85m) (Based on the trailing twelve months to March 2023).

Therefore, Consensus Cloud Solutions has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Software industry average of 10%.

Check out our latest analysis for Consensus Cloud Solutions

In the above chart we have measured Consensus Cloud Solutions' 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 Consensus Cloud Solutions here for free.

So How Is Consensus Cloud Solutions' ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at Consensus Cloud Solutions. The figures show that over the last three years, returns on capital have grown by 67%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Consensus Cloud Solutions appears to been achieving more with less, since the business is using 54% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

In Conclusion...

In a nutshell, we're pleased to see that Consensus Cloud Solutions has been able to generate higher returns from less capital. Astute investors may have an opportunity here because the stock has declined 25% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 3 warning signs for Consensus Cloud Solutions (2 don't sit too well with us) you should be aware of.

Consensus Cloud Solutions is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.

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