To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So when we looked at Thomson Reuters (TSE:TRI) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Thomson Reuters is:

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

0.13 = US$1.9b ÷ (US$18b - US$3.7b) (Based on the trailing twelve months to June 2024).

Therefore, Thomson Reuters has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Professional Services industry average of 14%.

See our latest analysis for Thomson Reuters

Above you can see how the current ROCE for Thomson Reuters compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Thomson Reuters .

So How Is Thomson Reuters' ROCE Trending?

Thomson Reuters' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 134% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Thomson Reuters' ROCE

In summary, we're delighted to see that Thomson Reuters has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 179% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Thomson Reuters can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing Thomson Reuters that you might find interesting.

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.