If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Salamis Tours (Holdings)'s (CSE:SAL) ROCE trend, we were pretty happy with what we saw.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Salamis Tours (Holdings), this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = €6.6m ÷ (€49m - €5.2m) (Based on the trailing twelve months to June 2020).
Thus, Salamis Tours (Holdings) has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 1.5% it's much better.
See our latest analysis for Salamis Tours (Holdings)
Historical performance is a great place to start when researching a stock so above you can see the gauge for Salamis Tours (Holdings)'s ROCE against it's prior returns. If you're interested in investigating Salamis Tours (Holdings)'s past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 15% for the last five years, and the capital employed within the business has risen 115% in that time. 15% is a pretty standard return, and it provides some comfort knowing that Salamis Tours (Holdings) 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.
One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 11% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.
The Bottom Line On Salamis Tours (Holdings)'s ROCE
In the end, Salamis Tours (Holdings) has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 682% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
Salamis Tours (Holdings) does have some risks, we noticed 4 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
While Salamis Tours (Holdings) may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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This article by Simply Wall St is general in nature. 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.
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About CSE:SAL
Salamis Tours (Holdings)
Operates in the travel, tourism, cruise, shipping, and transport sectors in Cyprus and Greece.
Flawless balance sheet with solid track record.
