We’re loving the yellow pages (TSE:Y) returns and here’s how they’re trending

What are the early trends to look for to identify a stock that could multiply in value over the long term? First, we’ll want to see proof come back on capital employed (ROCE) which is increasing, and on the other hand, a base capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. With this in mind, the ROCE of Yellow Pages (TSE:Y) looks great, so let’s see what the trend can tell us.

Return on capital employed (ROCE): what is it?

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. The formula for this calculation on the Yellow Pages is:

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

0.34 = C$79 million ÷ (C$291 million – C$58 million) (Based on the last twelve months to June 2022).

Therefore, Pages Jaunes has a ROCE of 34%. In absolute terms, this is an excellent performance and even better than the interactive media and services industry average of 4.4%.

See our latest analysis for the Yellow Pages

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Above, you can see how the Yellow Pages’ current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you want to see what analysts predict for the future, you should check out our free report for the Yellow Pages.

The ROCE trend

You would be hard pressed not to be impressed by the ROCE trend of the Yellow Pages. Figures show that over the past five years, capital returns have increased by 252%. The company now earns C$0.3 per dollar of capital employed. Interestingly, the company may be becoming more efficient as it uses 74% less capital than five years ago. If this trend continues, the company might become more efficient, but it is decreasing in terms of total assets.

What We Can Learn From Yellow Pages ROCE

In summary, it’s great to see that Yellow Pages has been able to turn the tide and achieve higher returns on less capital. And investors seem to expect more in the future, as the stock has rewarded shareholders with a 79% return over the past five years. In light of that, we think it’s worth digging deeper into this stock, because if Yellow Pages can sustain these trends, it could have a bright future ahead of it.

If you want to continue your search on the Yellow Pages, you may be interested in knowing the 1 warning sign that our analysis found.

If you want to see other businesses earning high returns, check out our free list of companies earning high returns with strong balance sheets here.

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

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Calvin W. Soper