Our Take On The Returns On Capital At Tatry mountain resorts (BSSE:1TMR001E)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Although, when we looked at Tatry mountain resorts (BSSE:1TMR001E), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Tatry mountain resorts is:

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

0.02 = €10m ÷ (€564m - €43m) (Based on the trailing twelve months to April 2020).

Therefore, Tatry mountain resorts has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 5.9%.

See our latest analysis for Tatry mountain resorts

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

So How Is Tatry mountain resorts' ROCE Trending?

There are better returns on capital out there than what we're seeing at Tatry mountain resorts. The company has employed 53% more capital in the last five years, and the returns on that capital have remained stable at 2.0%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Tatry mountain resorts' ROCE

In summary, Tatry mountain resorts has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 41% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One more thing, we've spotted 2 warning signs facing Tatry mountain resorts that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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