TradeDoubler (STO:TRAD) Is Experiencing Growth In Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in TradeDoubler's (STO:TRAD) returns on capital, so let's have a look.

Our free stock report includes 2 warning signs investors should be aware of before investing in TradeDoubler. Read for free now.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on TradeDoubler is:

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

0.04 = kr20m ÷ (kr1.2b - kr749m) (Based on the trailing twelve months to December 2024).

So, TradeDoubler has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Media industry average of 11%.

Check out our latest analysis for TradeDoubler

Historical performance is a great place to start when researching a stock so above you can see the gauge for TradeDoubler's ROCE against it's prior returns. If you'd like to look at how TradeDoubler has performed in the past in other metrics, you can view this free graph of TradeDoubler's past earnings, revenue and cash flow.

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 4.0%. The amount of capital employed has increased too, by 33%. So we're very much inspired by what we're seeing at TradeDoubler thanks to its ability to profitably reinvest capital.

On a side note, TradeDoubler's current liabilities are still rather high at 60% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On TradeDoubler's ROCE

All in all, it's terrific to see that TradeDoubler is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 2 warning signs for TradeDoubler that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.