Studio City International Holdings (NYSE:MSC) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Speaking of which, we noticed some great changes in Studio City International Holdings' (NYSE:MSC) returns on capital, so let's have a look.

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Understanding 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. Analysts use this formula to calculate it for Studio City International Holdings:

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

0.021 = US$58m ÷ (US$2.9b - US$208m) (Based on the trailing twelve months to June 2025).

Thus, Studio City International Holdings has an ROCE of 2.1%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 10%.

See our latest analysis for Studio City International Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Studio City International Holdings' ROCE against it's prior returns. If you'd like to look at how Studio City International Holdings has performed in the past in other metrics, you can view this free graph of Studio City International Holdings' past earnings, revenue and cash flow.

So How Is Studio City International Holdings' ROCE Trending?

Shareholders will be relieved that Studio City International Holdings has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 2.1% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Bottom Line

To bring it all together, Studio City International Holdings has done well to increase the returns it's generating from its capital employed. However the stock is down a substantial 76% in the last five years so there could be other areas of the business hurting its prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

On a separate note, we've found 1 warning sign for Studio City International Holdings you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.