What Do The Returns At Turism Hoteluri Restaurante Marea Neagra (BVB:EFO) Mean Going Forward?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Turism Hoteluri Restaurante Marea Neagra's (BVB:EFO) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 Turism Hoteluri Restaurante Marea Neagra:

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

0.0091 = RON2.4m ÷ (RON276m - RON14m) (Based on the trailing twelve months to June 2020).

Thus, Turism Hoteluri Restaurante Marea Neagra has an ROCE of 0.9%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 5.8%.

Check out our latest analysis for Turism Hoteluri Restaurante Marea Neagra

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Turism Hoteluri Restaurante Marea Neagra's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

While there are companies with higher returns on capital out there, we still find the trend at Turism Hoteluri Restaurante Marea Neagra promising. The figures show that over the last five years, ROCE has grown 60% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

As discussed above, Turism Hoteluri Restaurante Marea Neagra appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has returned a staggering 124% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

On a final note, we've found 3 warning signs for Turism Hoteluri Restaurante Marea Neagra that we think you should be aware of.

While Turism Hoteluri Restaurante Marea Neagra 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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