Western Regions Tourism DevelopmentLtd (SZSE:300859) Will Be Hoping To Turn Its Returns On Capital Around

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Western Regions Tourism DevelopmentLtd (SZSE:300859) and its ROCE trend, we weren't exactly thrilled.

What Is 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. To calculate this metric for Western Regions Tourism DevelopmentLtd, this is the formula:

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

0.11 = CN¥106m ÷ (CN¥963m - CN¥37m) (Based on the trailing twelve months to September 2024).

Thus, Western Regions Tourism DevelopmentLtd has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.7% generated by the Hospitality industry.

Check out our latest analysis for Western Regions Tourism DevelopmentLtd

In the above chart we have measured Western Regions Tourism DevelopmentLtd's 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 Western Regions Tourism DevelopmentLtd .

What The Trend Of ROCE Can Tell Us

In terms of Western Regions Tourism DevelopmentLtd's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 11% from 31% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Western Regions Tourism DevelopmentLtd's ROCE

While returns have fallen for Western Regions Tourism DevelopmentLtd in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 73% to shareholders over the last three years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

One more thing: We've identified 3 warning signs with Western Regions Tourism DevelopmentLtd (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.

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

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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.