Yahoo Finance Returns On Capital Signal Tricky Times Ahead For ZoomInfo Technologies (NASDAQ:ZI)
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'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. In light of that, when we looked at ZoomInfo Technologies (NASDAQ:ZI) and its ROCE trend, we weren't exactly thrilled.
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 ZoomInfo Technologies:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.04 = US$247m ÷ (US$6.8b - US$664m) (Based on the trailing twelve months to March 2024).
Therefore, ZoomInfo Technologies has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 6.4%.
See our latest analysis for ZoomInfo Technologies
In the above chart we have measured ZoomInfo Technologies' 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 ZoomInfo Technologies for free.
What Can We Tell From ZoomInfo Technologies' ROCE Trend?
On the surface, the trend of ROCE at ZoomInfo Technologies doesn't inspire confidence. To be more specific, ROCE has fallen from 5.3% over the last five years. However it looks like ZoomInfo Technologies might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.
In Conclusion...
To conclude, we've found that ZoomInfo Technologies is reinvesting in the business, but returns have been falling. Moreover, since the stock has crumbled 70% over the last three years, it appears investors are expecting the worst. Therefore based on the analysis done in this article, we don't think ZoomInfo Technologies has the makings of a multi-bagger.
While ZoomInfo Technologies doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for ZI on our platform.
While ZoomInfo Technologies 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.
