Yahoo Finance Returns Are Gaining Momentum At Reef Casino Trust (ASX:RCT)
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Reef Casino Trust (ASX:RCT) looks quite promising in regards to its trends of return on capital.
What is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Reef Casino Trust is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = AU$15m ÷ (AU$104m - AU$6.1m) (Based on the trailing twelve months to December 2021).
Thus, Reef Casino Trust has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 7.9% generated by the Hospitality industry.
See our latest analysis for Reef Casino Trust
Historical performance is a great place to start when researching a stock so above you can see the gauge for Reef Casino Trust's ROCE against it's prior returns. If you're interested in investigating Reef Casino Trust's past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
Reef Casino Trust's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 30% whilst employing roughly the same amount of capital. 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. 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 Bottom Line
In summary, we're delighted to see that Reef Casino Trust has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 26% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
One more thing to note, we've identified 2 warning signs with Reef Casino Trust and understanding these should be part of your investment process.
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.
