Returns At Tatry mountain resorts (BSSE:1TMR001E) Appear To Be Weighed Down

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Tatry mountain resorts (BSSE:1TMR001E), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Tatry mountain resorts, this is the formula:

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

0.04 = €21m ÷ (€577m - €54m) (Based on the trailing twelve months to April 2023).

So, Tatry mountain resorts has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 6.4%.

Check out our latest analysis for Tatry mountain resorts

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'd like to look at how Tatry mountain resorts has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Tatry mountain resorts' ROCE Trend?

The returns on capital haven't changed much for Tatry mountain resorts in recent years. Over the past five years, ROCE has remained relatively flat at around 4.0% and the business has deployed 25% more capital into its operations. 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.

Our Take On Tatry mountain resorts' ROCE

As we've seen above, Tatry mountain resorts' returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 15% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Tatry mountain resorts has the makings of a multi-bagger.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Tatry mountain resorts (of which 1 is potentially serious!) that you should know about.

While Tatry mountain resorts 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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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.