Round One (TSE:4680) Might Have The Makings Of A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 Round One's (TSE:4680) 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. The formula for this calculation on Round One is:

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

0.16 = JP¥27b ÷ (JP¥216b - JP¥50b) (Based on the trailing twelve months to December 2024).

So, Round One has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 9.6% it's much better.

See our latest analysis for Round One

Above you can see how the current ROCE for Round One compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Round One for free.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Round One. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. The amount of capital employed has increased too, by 70%. So we're very much inspired by what we're seeing at Round One thanks to its ability to profitably reinvest capital.

The Bottom Line On Round One's ROCE

All in all, it's terrific to see that Round One is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 375% 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 Round One can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Round One that we think you should be aware of.

While Round One 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.