FTB Turizam d.d (ZGSE:LRHC) Has Some Way To Go To Become A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at FTB Turizam d.d (ZGSE:LRHC), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for FTB Turizam d.d, this is the formula:

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

0.063 = Kn22m ÷ (Kn397m - Kn44m) (Based on the trailing twelve months to September 2022).

Thus, FTB Turizam d.d has an ROCE of 6.3%. On its own that's a low return, but compared to the average of 5.1% generated by the Hospitality industry, it's much better.

Check out our latest analysis for FTB Turizam d.d

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

What Can We Tell From FTB Turizam d.d's ROCE Trend?

We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 22% in that same period. To us that doesn't look like a multi-bagger because the company appears to be selling assets and it's returns aren't increasing. In addition to that, since the ROCE doesn't scream "quality" at 6.3%, it's hard to get excited about these developments.

The Bottom Line On FTB Turizam d.d's ROCE

It's a shame to see that FTB Turizam d.d is effectively shrinking in terms of its capital base. And in the last five years, the stock has given away 34% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think FTB Turizam d.d has the makings of a multi-bagger.

On a final note, we found 3 warning signs for FTB Turizam d.d (1 is a bit unpleasant) you should be aware of.

While FTB Turizam d.d may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.