Revel Collective (LON:TRC) Will Be Looking To Turn Around Its Returns

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. So after we looked into Revel Collective (LON:TRC), the trends above didn't look too great.

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What Is 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. The formula for this calculation on Revel Collective is:

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

0.032 = UK£1.6m ÷ (UK£81m - UK£29m) (Based on the trailing twelve months to December 2024).

Thus, Revel Collective has an ROCE of 3.2%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 7.1%.

Check out our latest analysis for Revel Collective

Above you can see how the current ROCE for Revel Collective compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Revel Collective for free.

The Trend Of ROCE

The trend of ROCE doesn't look fantastic because it's fallen from 4.6% five years ago and the business is utilizing 58% less capital, even after their capital raise (conducted prior to the latest reporting period).

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 36%, which has impacted the ROCE. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.

What We Can Learn From Revel Collective's ROCE

In summary, it's unfortunate that Revel Collective is shrinking its capital base and also generating lower returns. Unsurprisingly then, the stock has dived 98% over the last five years, so investors are recognizing these changes and don't like the company's prospects. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Revel Collective does have some risks, we noticed 4 warning signs (and 3 which are significant) we think you should know about.

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.