The Return Trends At Viceroy Hotels (NSE:VHLTD) Look Promising

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Viceroy Hotels' (NSE:VHLTD) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Viceroy Hotels:

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

0.027 = ₹71m ÷ (₹3.3b - ₹635m) (Based on the trailing twelve months to June 2024).

Therefore, Viceroy Hotels has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 10%.

View our latest analysis for Viceroy Hotels

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Viceroy Hotels has performed in the past in other metrics, you can view this free graph of Viceroy Hotels' past earnings, revenue and cash flow.

So How Is Viceroy Hotels' ROCE Trending?

Viceroy Hotels has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.7% on its capital. In addition to that, Viceroy Hotels is employing 37% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Viceroy Hotels has decreased current liabilities to 19% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Viceroy Hotels has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

Overall, Viceroy Hotels gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. However the stock is down a substantial 99% in the last five years so there could be other areas of the business hurting its prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

If you'd like to know more about Viceroy Hotels, we've spotted 3 warning signs, and 2 of them shouldn't be ignored.

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.