Returns On Capital Are Showing Encouraging Signs At PARKEN Sport & Entertainment (CPH:PARKEN)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, PARKEN Sport & Entertainment (CPH:PARKEN) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for PARKEN Sport & Entertainment:

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

0.13 = kr.343m ÷ (kr.3.4b - kr.799m) (Based on the trailing twelve months to September 2023).

Therefore, PARKEN Sport & Entertainment has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 7.0% generated by the Hospitality industry.

See our latest analysis for PARKEN Sport & Entertainment

Historical performance is a great place to start when researching a stock so above you can see the gauge for PARKEN Sport & Entertainment's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of PARKEN Sport & Entertainment, check out these free graphs here.

What Can We Tell From PARKEN Sport & Entertainment's ROCE Trend?

PARKEN Sport & Entertainment is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 27% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

To sum it up, PARKEN Sport & Entertainment has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if PARKEN Sport & Entertainment can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing PARKEN Sport & Entertainment, we've discovered 2 warning signs that you should be aware of.

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.