If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Western Regions Tourism DevelopmentLtd's (SZSE:300859) trend of ROCE, we liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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 Western Regions Tourism DevelopmentLtd:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = CN¥119m ÷ (CN¥765m - CN¥28m) (Based on the trailing twelve months to March 2024).
Therefore, Western Regions Tourism DevelopmentLtd has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 11% generated by the Hospitality industry.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Western Regions Tourism DevelopmentLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Western Regions Tourism DevelopmentLtd.
So How Is Western Regions Tourism DevelopmentLtd's ROCE Trending?
While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 69% more capital into its operations. 16% is a pretty standard return, and it provides some comfort knowing that Western Regions Tourism DevelopmentLtd has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
What We Can Learn From Western Regions Tourism DevelopmentLtd's ROCE
In the end, Western Regions Tourism DevelopmentLtd has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 79% to shareholders over the last three years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
If you want to continue researching Western Regions Tourism DevelopmentLtd, you might be interested to know about the 1 warning sign that our analysis has discovered.
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.
