Yahoo Finance Some Investors May Be Worried About Revolution Bars Group's (LON:RBG) Returns On Capital
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Revolution Bars Group (LON:RBG), we don't think it's current trends fit the mold of a multi-bagger.
Return On Capital Employed (ROCE): What Is It?
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 Revolution Bars Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.051 = UK£5.1m ÷ (UK£140m - UK£40m) (Based on the trailing twelve months to July 2023).
Thus, Revolution Bars Group has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 7.3%.
See our latest analysis for Revolution Bars Group
In the above chart we have measured Revolution Bars Group's 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 Revolution Bars Group here for free.
The Trend Of ROCE
On the surface, the trend of ROCE at Revolution Bars Group doesn't inspire confidence. To be more specific, ROCE has fallen from 14% over the last five years. However it looks like Revolution Bars Group might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
What We Can Learn From Revolution Bars Group's ROCE
Bringing it all together, while we're somewhat encouraged by Revolution Bars Group's reinvestment in its own business, we're aware that returns are shrinking. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 94% over the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
On a final note, we found 4 warning signs for Revolution Bars Group (1 shouldn't be ignored) you should be aware of.
While Revolution Bars Group 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.
