Investors Will Want SIF Hoteluri's (BVB:CAOR) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at SIF Hoteluri (BVB:CAOR) so let's look a bit deeper.

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. Analysts use this formula to calculate it for SIF Hoteluri:

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

0.014 = RON1.3m ÷ (RON100m - RON5.1m) (Based on the trailing twelve months to March 2023).

Thus, SIF Hoteluri has an ROCE of 1.4%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 6.3%.

View our latest analysis for SIF Hoteluri

Historical performance is a great place to start when researching a stock so above you can see the gauge for SIF Hoteluri's ROCE against it's prior returns. If you'd like to look at how SIF Hoteluri has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is SIF Hoteluri's ROCE Trending?

Shareholders will be relieved that SIF Hoteluri has broken into profitability. The company now earns 1.4% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

Our Take On SIF Hoteluri's ROCE

In summary, we're delighted to see that SIF Hoteluri has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 98% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

SIF Hoteluri does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While SIF Hoteluri isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.