Stock Analysis

RVRC Holding (STO:RVRC) Is Achieving High Returns On Its Capital

OM:RVRC
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at RVRC Holding's (STO:RVRC) look very promising so lets take a look.

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. To calculate this metric for RVRC Holding, this is the formula:

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

0.28 = kr303m ÷ (kr1.4b - kr314m) (Based on the trailing twelve months to December 2022).

Therefore, RVRC Holding has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 9.7% earned by companies in a similar industry.

View our latest analysis for RVRC Holding

roce
OM:RVRC Return on Capital Employed February 23rd 2023

Above you can see how the current ROCE for RVRC Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From RVRC Holding's ROCE Trend?

The trends we've noticed at RVRC Holding are quite reassuring. Over the last four years, returns on capital employed have risen substantially to 28%. The amount of capital employed has increased too, by 28%. So we're very much inspired by what we're seeing at RVRC Holding thanks to its ability to profitably reinvest capital.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 22% of the business, which is more than it was four years ago. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

What We Can Learn From RVRC Holding's ROCE

All in all, it's terrific to see that RVRC Holding is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 55% in the last year, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing to note, we've identified 1 warning sign with RVRC Holding and understanding this should be part of your investment process.

RVRC Holding is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Valuation is complex, but we're helping make it simple.

Find out whether RVRC Holding is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.