Country Club Hospitality & Holidays (NSE:CCHHL) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Country Club Hospitality & Holidays' (NSE:CCHHL) returns on capital, so let's have a look.

What Is 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. Analysts use this formula to calculate it for Country Club Hospitality & Holidays:

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

0.0043 = ₹21m ÷ (₹6.0b - ₹1.2b) (Based on the trailing twelve months to September 2024).

Thus, Country Club Hospitality & Holidays has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 9.4%.

View our latest analysis for Country Club Hospitality & Holidays

Historical performance is a great place to start when researching a stock so above you can see the gauge for Country Club Hospitality & Holidays' ROCE against it's prior returns. If you're interested in investigating Country Club Hospitality & Holidays' past further, check out this free graph covering Country Club Hospitality & Holidays' past earnings, revenue and cash flow.

What Does the ROCE Trend For Country Club Hospitality & Holidays Tell Us?

We're delighted to see that Country Club Hospitality & Holidays is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 0.4% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 65% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. Country Club Hospitality & Holidays could be selling under-performing assets since the ROCE is improving.

The Bottom Line On Country Club Hospitality & Holidays' ROCE

From what we've seen above, Country Club Hospitality & Holidays has managed to increase it's returns on capital all the while reducing it's capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Country Club Hospitality & Holidays can keep these trends up, it could have a bright future ahead.

Country Club Hospitality & Holidays does have some risks, we noticed 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

While Country Club Hospitality & Holidays isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.