RCI Hospitality Holdings (NASDAQ:RICK) Hasn't Managed To Accelerate Its Returns

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of RCI Hospitality Holdings (NASDAQ:RICK) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding 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 RCI Hospitality Holdings is:

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

0.12 = US$69m ÷ (US$620m - US$52m) (Based on the trailing twelve months to June 2023).

Thus, RCI Hospitality Holdings has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 9.6% generated by the Hospitality industry.

View our latest analysis for RCI Hospitality Holdings

In the above chart we have measured RCI Hospitality Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering RCI Hospitality Holdings here for free.

What Does the ROCE Trend For RCI Hospitality Holdings Tell Us?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 93% more capital into its operations. 12% is a pretty standard return, and it provides some comfort knowing that RCI Hospitality Holdings has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From RCI Hospitality Holdings' ROCE

The main thing to remember is that RCI Hospitality Holdings has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 95% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Like most companies, RCI Hospitality Holdings does come with some risks, and we've found 1 warning sign that you should be aware of.

While RCI Hospitality Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.