The return trends for LiveRamp Holdings (NYSE:RAMP) look promising

If you are looking for a multi-bagger, there are a few things you should pay attention to. First, we want to identify growth return on the capital employed (ROCE) and a constantly increasing value base of the capital employed. Essentially, this means that a company has profitable initiatives that it can continue to reinvest in, which is a characteristic of a compounding machine. So when we looked at that LiveRamp holdings (NYSE:RAMP) and its ROCE trend, we really liked what we saw.

What is Return on Capital Employed (ROCE)?

If you’ve never worked with ROCE before, it measures the “return” (profit before taxes) that a company generates from the capital employed in its business. To calculate this metric for LiveRamp Holdings, this is the formula:

Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.017 = $18 million ÷ ($1.2 billion – $190 million) (Based on the last twelve months ended June 2024).

So, LiveRamp Holdings has an ROCE of 1.7%. In absolute terms, this is a low return and is also below the software industry average of 8.6%.

Check out our latest analysis for LiveRamp Holdings

Above you can see how LiveRamp Holdings’ current ROCE compares to its past returns on capital, but there’s only so much you can tell from the past. If you want, you can check out analyst forecasts for LiveRamp Holdings free.

What the ROCE trend can tell us

We are pleased that LiveRamp Holdings is benefiting from its investments and is now moving into profitability. While the company is profitable today, five years ago it was still recording losses on invested capital. Additionally, the company is using 23% less capital than it was five years ago, and at face value this may mean the company needs fewer funds at work to generate a return. This could potentially mean that the company sells some of its assets.

What we can learn from LiveRamp Holdings’ ROCE

In summary, it’s great to see that LiveRamp Holdings was able to turn things around and generate higher returns with less capital. And with the stock down 36% over the last five years, there could be an opportunity here. Against this background, an examination of the company’s current valuation metrics and future prospects seems appropriate.

If you want to know more about the risks LiveRamp Holdings faces, we’ve got it figured out 2 warning signs what you should be aware of.

If you want to look for solid companies with great earnings, check this out free List of companies with good balance sheets and impressive returns on equity.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.