Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in Byke Hospitality's (NSE:BYKE) returns on capital, so let's have a look.
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. To calculate this metric for Byke Hospitality, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.037 = ₹104m ÷ (₹3.0b - ₹186m) (Based on the trailing twelve months to December 2024).
Therefore, Byke Hospitality has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 8.7%.
View our latest analysis for Byke Hospitality
Historical performance is a great place to start when researching a stock so above you can see the gauge for Byke Hospitality's ROCE against it's prior returns. If you'd like to look at how Byke Hospitality has performed in the past in other metrics, you can view this free graph of Byke Hospitality's past earnings, revenue and cash flow .
How Are Returns Trending?
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 3.7%. The amount of capital employed has increased too, by 24%. So we're very much inspired by what we're seeing at Byke Hospitality thanks to its ability to profitably reinvest capital.
The Bottom Line On Byke Hospitality's ROCE
All in all, it's terrific to see that Byke Hospitality is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 610% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Byke Hospitality can keep these trends up, it could have a bright future ahead.
Byke Hospitality does have some risks though, and we've spotted 1 warning sign for Byke Hospitality that you might be interested in.
While Byke Hospitality isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Valuation is complex, but we're here to simplify it.
Discover if Byke Hospitality might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.