Returns On Capital Are Showing Encouraging Signs At Constantinou Bros Hotels (CSE:CBH)

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. 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. With that in mind, we've noticed some promising trends at Constantinou Bros Hotels (CSE:CBH) so let's look a bit deeper.

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Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Constantinou Bros Hotels is:

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

0.064 = €13m ÷ (€232m - €27m) (Based on the trailing twelve months to December 2024).

Therefore, Constantinou Bros Hotels has an ROCE of 6.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.9%.

Check out our latest analysis for Constantinou Bros Hotels

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Constantinou Bros Hotels has performed in the past in other metrics, you can view this free graph of Constantinou Bros Hotels' past earnings, revenue and cash flow.

What Does the ROCE Trend For Constantinou Bros Hotels Tell Us?

Constantinou Bros Hotels 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 103% 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Constantinou Bros Hotels' ROCE

To sum it up, Constantinou Bros Hotels is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 105% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

One final note, you should learn about the 3 warning signs we've spotted with Constantinou Bros Hotels (including 2 which make us uncomfortable) .

While Constantinou Bros Hotels 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.