Hollywood Bowl Group's (LON:BOWL) Returns Have Hit A Wall

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Hollywood Bowl Group's (LON:BOWL) ROCE trend, we were pretty happy with what we saw.

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. To calculate this metric for Hollywood Bowl Group, this is the formula:

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

0.18 = UK£55m ÷ (UK£333m - UK£35m) (Based on the trailing twelve months to March 2022).

Thus, Hollywood Bowl Group has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 5.9% generated by the Hospitality industry.

View our latest analysis for Hollywood Bowl Group

Above you can see how the current ROCE for Hollywood Bowl Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Hollywood Bowl Group.

So How Is Hollywood Bowl Group's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 138% in that time. 18% is a pretty standard return, and it provides some comfort knowing that Hollywood Bowl Group has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

In the end, Hollywood Bowl Group has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 23% over the last five years for shareholders who have owned the stock in this period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

One more thing: We've identified 2 warning signs with Hollywood Bowl Group (at least 1 which can't be ignored) , and understanding them would certainly be useful.

While Hollywood Bowl Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.