Investors Should Be Encouraged By SeaWorld Entertainment's (NYSE:SEAS) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of SeaWorld Entertainment (NYSE:SEAS) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for SeaWorld Entertainment:

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

0.27 = US$514m ÷ (US$2.4b - US$430m) (Based on the trailing twelve months to September 2022).

Thus, SeaWorld Entertainment has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Hospitality industry average of 11%.

View our latest analysis for SeaWorld Entertainment

Above you can see how the current ROCE for SeaWorld Entertainment compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for SeaWorld Entertainment.

What The Trend Of ROCE Can Tell Us

SeaWorld Entertainment is showing promise given that its ROCE is trending up and to the right. 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 512% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

To sum it up, SeaWorld Entertainment is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 300% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if SeaWorld Entertainment can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for SeaWorld Entertainment that we think you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.