We Like These Underlying Return On Capital Trends At RLH Properties. de (BMV:RLHA)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. So on that note, RLH Properties. de (BMV:RLHA) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for RLH Properties. de, this is the formula:

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

0.035 = Mex$738m ÷ (Mex$25b - Mex$4.4b) (Based on the trailing twelve months to March 2023).

So, RLH Properties. de has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 7.3%.

View our latest analysis for RLH Properties. de

Historical performance is a great place to start when researching a stock so above you can see the gauge for RLH Properties. de's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of RLH Properties. de, check out these free graphs here.

What Does the ROCE Trend For RLH Properties. de Tell Us?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 958% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

In summary, we're delighted to see that RLH Properties. de has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

On a separate note, we've found 2 warning signs for RLH Properties. de you'll probably want to know about.

While RLH Properties. de 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.