We're Watching These Trends At Rosinter Restaurants Holding (MCX:ROST)

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Having said that, from a first glance at Rosinter Restaurants Holding (MCX:ROST) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Rosinter Restaurants Holding, this is the formula:

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

0.073 = ₽409m ÷ (₽9.8b - ₽4.2b) (Based on the trailing twelve months to June 2020).

So, Rosinter Restaurants Holding has an ROCE of 7.3%. Even though it's in line with the industry average of 6.6%, it's still a low return by itself.

View our latest analysis for Rosinter Restaurants Holding

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

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Rosinter Restaurants Holding in recent years. The company has consistently earned 7.3% for the last four years, and the capital employed within the business has risen 472% in that time. 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.

On a side note, Rosinter Restaurants Holding has done well to reduce current liabilities to 43% of total assets over the last four years. Effectively suppliers now fund less of the business, which can lower some elements of risk. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

Our Take On Rosinter Restaurants Holding's ROCE

In summary, Rosinter Restaurants Holding has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 9.1% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know more about Rosinter Restaurants Holding, we've spotted 4 warning signs, and 2 of them are a bit unpleasant.

While Rosinter Restaurants Holding 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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