Returns Are Gaining Momentum At RCI Hospitality Holdings (NASDAQ:RICK)

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in RCI Hospitality Holdings' (NASDAQ:RICK) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for RCI Hospitality Holdings, this is the formula:

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

0.14 = US$61m ÷ (US$466m - US$36m) (Based on the trailing twelve months to December 2021).

So, RCI Hospitality Holdings has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 9.0% it's much better.

Check out our latest analysis for RCI Hospitality Holdings

Above you can see how the current ROCE for RCI Hospitality Holdings 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 RCI Hospitality Holdings' ROCE Trend?

We like the trends that we're seeing from RCI Hospitality Holdings. Over the last five years, returns on capital employed have risen substantially to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 70% more capital is being employed now too. So we're very much inspired by what we're seeing at RCI Hospitality Holdings thanks to its ability to profitably reinvest capital.

Our Take On RCI Hospitality Holdings' ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what RCI Hospitality Holdings has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if RCI Hospitality Holdings can keep these trends up, it could have a bright future ahead.

On a final note, we've found 4 warning signs for RCI Hospitality Holdings that we think you should be aware of.

While RCI Hospitality Holdings 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.