If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Speaking of which, we noticed some great changes in Reef Casino Trust's (ASX:RCT) returns on capital, so let's have a look.

We've discovered 2 warning signs about Reef Casino Trust. View them for free.

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. To calculate this metric for Reef Casino Trust, this is the formula:

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

0.11 = AU$10m ÷ (AU$101m - AU$4.7m) (Based on the trailing twelve months to December 2024).

Thus, Reef Casino Trust has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.2% generated by the Hospitality industry.

View 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 covering Reef Casino Trust's past earnings, revenue and cash flow.

The Trend Of ROCE

Reef Casino Trust is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 50% whilst employing roughly the same amount of capital. 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Reef Casino Trust's ROCE

To bring it all together, Reef Casino Trust has done well to increase the returns it's generating from its capital employed. And a remarkable 153% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know about the risks facing Reef Casino Trust, we've discovered 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.