If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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 Trustpilot Group's (LON:TRST) returns on capital, so let's have a look.

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. To calculate this metric for Trustpilot Group, this is the formula:

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

0.043 = US$3.3m ÷ (US$149m - US$73m) (Based on the trailing twelve months to June 2024).

So, Trustpilot Group has an ROCE of 4.3%. Ultimately, that's a low return and it under-performs the Interactive Media and Services industry average of 25%.

View our latest analysis for Trustpilot Group

In the above chart we have measured Trustpilot Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Trustpilot Group .

How Are Returns Trending?

We're delighted to see that Trustpilot Group is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 4.3% on its capital. In addition to that, Trustpilot Group is employing 1,357% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 49%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Bottom Line On Trustpilot Group's ROCE

In summary, it's great to see that Trustpilot Group has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 39% over the last three years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.