If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Vivid Seats (NASDAQ:SEAT) and its trend of ROCE, we really liked what we saw.

Understanding 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. Analysts use this formula to calculate it for Vivid Seats:

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

0.076 = US$80m ÷ (US$1.6b - US$488m) (Based on the trailing twelve months to December 2023).

So, Vivid Seats has an ROCE of 7.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.4%.

View our latest analysis for Vivid Seats

In the above chart we have measured Vivid Seats' 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 Vivid Seats .

What Does the ROCE Trend For Vivid Seats Tell Us?

We're delighted to see that Vivid Seats is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital four years ago. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 20%. This could potentially mean that the company is selling some of its assets.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 31% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

The Bottom Line On Vivid Seats' ROCE

In summary, it's great to see that Vivid Seats has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has fallen 46% over the last three years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.