We Like These Underlying Return On Capital Trends At Société Hôtelière et Immobilière de Nice (EPA:MLHIN)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Société Hôtelière et Immobilière de Nice (EPA:MLHIN) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Société Hôtelière et Immobilière de Nice:

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

0.021 = €355k ÷ (€18m - €825k) (Based on the trailing twelve months to December 2022).

Therefore, Société Hôtelière et Immobilière de Nice has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 7.5%.

See our latest analysis for Société Hôtelière et Immobilière de Nice

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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Société Hôtelière et Immobilière de Nice.

How Are Returns Trending?

Société Hôtelière et Immobilière de Nice has broken into the black (profitability) and we're sure it's a sight for sore eyes. While the business was unprofitable in the past, it's now turned things around and is earning 2.1% on its capital. While returns have increased, the amount of capital employed by Société Hôtelière et Immobilière de Nice has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line On Société Hôtelière et Immobilière de Nice's ROCE

To sum it up, Société Hôtelière et Immobilière de Nice is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 60% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Société Hôtelière et Immobilière de Nice we've found 2 warning signs (1 is potentially serious!) that you should be aware of before investing here.

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.