Salamis Tours (Holdings) (CSE:SAL) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Salamis Tours (Holdings) (CSE:SAL) so let's look a bit deeper.

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 Salamis Tours (Holdings), this is the formula:

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

0.18 = €10m ÷ (€71m - €12m) (Based on the trailing twelve months to June 2022).

Thus, Salamis Tours (Holdings) has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 5.4% generated by the Hospitality industry.

Check out 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'd like to look at how Salamis Tours (Holdings) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

SWOT Analysis for Salamis Tours (Holdings)

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Salamis Tours (Holdings) are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 98%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Salamis Tours (Holdings)'s ROCE

In summary, it's great to see that Salamis Tours (Holdings) can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 557% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Salamis Tours (Holdings) does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is potentially serious...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.