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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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, LiveRamp Holdings (NYSE:RAMP) looks quite promising in regards to its trends of return on capital.
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 LiveRamp Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0076 = US$7.8m ÷ (US$1.3b - US$232m) (Based on the trailing twelve months to December 2024).
Thus, LiveRamp Holdings has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Software industry average of 9.2%.
View our latest analysis for LiveRamp Holdings
Above you can see how the current ROCE for LiveRamp Holdings 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 LiveRamp Holdings .
What The Trend Of ROCE Can Tell Us
Shareholders will be relieved that LiveRamp Holdings has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 0.8%, which is always encouraging. While returns have increased, the amount of capital employed by LiveRamp Holdings has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
The Bottom Line
As discussed above, LiveRamp Holdings appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Astute investors may have an opportunity here because the stock has declined 18% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.