Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at OneSpaWorld Holdings (NASDAQ:OSW) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on OneSpaWorld Holdings is:

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

0.093 = US$63m ÷ (US$764m - US$88m) (Based on the trailing twelve months to March 2024).

Thus, OneSpaWorld Holdings has an ROCE of 9.3%. On its own that's a low return, but compared to the average of 7.6% generated by the Consumer Services industry, it's much better.

In the above chart we have measured OneSpaWorld 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 OneSpaWorld Holdings for free.

What Can We Tell From OneSpaWorld Holdings' ROCE Trend?

OneSpaWorld Holdings has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 214%. The company is now earning US$0.09 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 26% less capital than it was five years ago. OneSpaWorld Holdings may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line On OneSpaWorld Holdings' ROCE

In summary, it's great to see that OneSpaWorld Holdings has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has only returned 5.9% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know about the risks facing OneSpaWorld Holdings, we've discovered 3 warning signs that you should be aware of.

While OneSpaWorld Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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