Returns At ROYAL HOLDINGS (TSE:8179) Appear To Be Weighed Down

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think ROYAL HOLDINGS (TSE:8179) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for ROYAL HOLDINGS, this is the formula:

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

0.061 = JP¥6.2b ÷ (JP¥131b - JP¥28b) (Based on the trailing twelve months to March 2024).

So, ROYAL HOLDINGS has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 9.6%.

View our latest analysis for ROYAL HOLDINGS

Above you can see how the current ROCE for ROYAL HOLDINGS compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for ROYAL HOLDINGS .

What Does the ROCE Trend For ROYAL HOLDINGS Tell Us?

In terms of ROYAL HOLDINGS' historical ROCE trend, it doesn't exactly demand attention. The company has employed 24% more capital in the last five years, and the returns on that capital have remained stable at 6.1%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On ROYAL HOLDINGS' ROCE

In summary, ROYAL HOLDINGS has simply been reinvesting capital and generating the same low rate of return as before. And in the last five years, the stock has given away 15% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think ROYAL HOLDINGS has the makings of a multi-bagger.

ROYAL HOLDINGS could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for 8179 on our platform quite valuable.

While ROYAL HOLDINGS 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com