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. 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 Clear Channel Outdoor Holdings' (NYSE:CCO) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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 Clear Channel Outdoor Holdings:

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

0.075 = US$281m ÷ (US$4.6b - US$796m) (Based on the trailing twelve months to March 2024).

So, Clear Channel Outdoor Holdings has an ROCE of 7.5%. In absolute terms, that's a low return and it also under-performs the Media industry average of 10%.

View our latest analysis for Clear Channel Outdoor Holdings

In the above chart we have measured Clear Channel Outdoor Holdings' 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 Clear Channel Outdoor Holdings for free.

How Are Returns Trending?

Clear Channel Outdoor Holdings has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 38%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Clear Channel Outdoor Holdings appears to been achieving more with less, since the business is using 29% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

What We Can Learn From Clear Channel Outdoor Holdings' ROCE

In summary, it's great to see that Clear Channel Outdoor Holdings has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has fallen 34% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Clear Channel Outdoor Holdings does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com