We Like These Underlying Return On Capital Trends At Reef Casino Trust (ASX:RCT)

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Reef Casino Trust's (ASX:RCT) returns on capital, so let's have a look.

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. 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)

0.16 = AU$15m ÷ (AU$102m - AU$4.7m) (Based on the trailing twelve months to June 2022).

So, Reef Casino Trust has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 8.1% generated by the Hospitality industry.

See 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 of past earnings, revenue and cash flow.

What Can We Tell From Reef Casino Trust's ROCE Trend?

Reef Casino Trust's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 64% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In Conclusion...

To sum it up, Reef Casino Trust is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 42% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. 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.

On a final note, we've found 3 warning signs for Reef Casino Trust that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.