We Like These Underlying Return On Capital Trends At Xenia Hôtellerie Solution. Società Benefit (BIT:XHS)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. With that in mind, we've noticed some promising trends at Xenia Hôtellerie Solution. Società Benefit (BIT:XHS) so let's look a bit deeper.

We've discovered 5 warning signs about Xenia Hôtellerie Solution. Società Benefit. View them for free.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Xenia Hôtellerie Solution. Società Benefit is:

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

0.062 = €1.7m ÷ (€52m - €25m) (Based on the trailing twelve months to June 2024).

Thus, Xenia Hôtellerie Solution. Società Benefit has an ROCE of 6.2%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 7.9%.

View our latest analysis for Xenia Hôtellerie Solution. Società Benefit

In the above chart we have measured Xenia Hôtellerie Solution. Società Benefit's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Xenia Hôtellerie Solution. Società Benefit .

What The Trend Of ROCE Can Tell Us

We're delighted to see that Xenia Hôtellerie Solution. Società Benefit is reaping rewards from its investments and is now generating some pre-tax profits. About four years ago the company was generating losses but things have turned around because it's now earning 6.2% on its capital. And unsurprisingly, like most companies trying to break into the black, Xenia Hôtellerie Solution. Società Benefit is utilizing 66% more capital than it was four years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a separate but related note, it's important to know that Xenia Hôtellerie Solution. Società Benefit has a current liabilities to total assets ratio of 48%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

Long story short, we're delighted to see that Xenia Hôtellerie Solution. Società Benefit's reinvestment activities have paid off and the company is now profitable. And with a respectable 15% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about Xenia Hôtellerie Solution. Società Benefit, we've spotted 5 warning signs, and 2 of them don't sit too well with us.

While Xenia Hôtellerie Solution. Società Benefit 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.

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.