Investors Could Be Concerned With Canterbury Park Holding's (NASDAQ:CPHC) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. However, after briefly looking over the numbers, we don't think Canterbury Park Holding (NASDAQ:CPHC) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Canterbury Park Holding is:

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

0.065 = US$5.9m ÷ (US$101m - US$10m) (Based on the trailing twelve months to September 2023).

Therefore, Canterbury Park Holding has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 9.1%.

Check out our latest analysis for Canterbury Park Holding

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

So How Is Canterbury Park Holding's ROCE Trending?

In terms of Canterbury Park Holding's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 11% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Canterbury Park Holding's ROCE

In summary, Canterbury Park Holding is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly, the stock has only gained 1.2% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a final note, we've found 3 warning signs for Canterbury Park Holding that we think you should be aware of.

While Canterbury Park 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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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.