Investors Will Want Royal Caribbean Cruises' (NYSE:RCL) Growth In ROCE To Persist

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. So when we looked at Royal Caribbean Cruises (NYSE:RCL) and its trend of ROCE, we really liked what we saw.

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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 Royal Caribbean Cruises:

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

0.16 = US$4.3b ÷ (US$37b - US$10b) (Based on the trailing twelve months to March 2025).

So, Royal Caribbean Cruises has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 9.6% generated by the Hospitality industry.

See our latest analysis for Royal Caribbean Cruises

In the above chart we have measured Royal Caribbean Cruises' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Royal Caribbean Cruises .

What Does the ROCE Trend For Royal Caribbean Cruises Tell Us?

Royal Caribbean Cruises' ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 147% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Royal Caribbean Cruises' ROCE

To bring it all together, Royal Caribbean Cruises has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 332% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 2 warning signs for Royal Caribbean Cruises that we think you should be aware of.

While Royal Caribbean Cruises 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.