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. Speaking of which, we noticed some great changes in Reef Casino Trust’s (ASX:RCT) returns on capital, so let’s have a look.
We’ve discovered 2 warning signs about Reef Casino Trust. View them for free.
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Reef Casino Trust, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.11 = AU$10m ÷ (AU$101m – AU$4.7m) (Based on the trailing twelve months to December 2024).
Thus, Reef Casino Trust has an ROCE of 11%. That’s a relatively normal return on capital, and it’s around the 9.2% generated by the Hospitality industry.
View our latest analysis for Reef Casino Trust
Historical performance is a great place to start when researching a stock so above you can see the gauge for Reef Casino Trust’s ROCE against it’s prior returns. If you’re interested in investigating Reef Casino Trust’s past further, check out this free graph covering Reef Casino Trust’s past earnings, revenue and cash flow.
Reef Casino Trust is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 50% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company’s efficiencies. On that front, things are looking good so it’s worth exploring what management has said about growth plans going forward.
To bring it all together, Reef Casino Trust has done well to increase the returns it’s generating from its capital employed. And a remarkable 153% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it’s worth researching the company further to see if these trends are likely to persist.
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