AmRest Holdings (WSE:EAT) Is Experiencing Growth In Returns On Capital

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. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at AmRest Holdings (WSE:EAT) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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 AmRest Holdings is:

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

0.087 = €152m ÷ (€2.3b - €543m) (Based on the trailing twelve months to June 2024).

Therefore, AmRest Holdings has an ROCE of 8.7%. On its own, that's a low figure but it's around the 7.5% average generated by the Hospitality industry.

See our latest analysis for AmRest Holdings

Above you can see how the current ROCE for AmRest Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for AmRest Holdings .

What Does the ROCE Trend For AmRest Holdings Tell Us?

AmRest Holdings is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 68% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In Conclusion...

To sum it up, AmRest Holdings is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 52% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

AmRest Holdings does have some risks though, and we've spotted 1 warning sign for AmRest Holdings that you might be interested in.

While AmRest 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.