Yahoo Finance Returns On Capital At Keg Royalties Income Fund (TSE:KEG.UN) Have Stalled
If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Keg Royalties Income Fund (TSE:KEG.UN) and its ROCE trend, we weren't exactly thrilled.
Understanding 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 Keg Royalties Income Fund is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = CA$34m ÷ (CA$261m - CA$4.6m) (Based on the trailing twelve months to December 2023).
So, Keg Royalties Income Fund has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 11% generated by the Hospitality industry.
Check out our latest analysis for Keg Royalties Income Fund
Historical performance is a great place to start when researching a stock so above you can see the gauge for Keg Royalties Income Fund's ROCE against it's prior returns. If you'd like to look at how Keg Royalties Income Fund has performed in the past in other metrics, you can view this free graph of Keg Royalties Income Fund's past earnings, revenue and cash flow.
What Does the ROCE Trend For Keg Royalties Income Fund Tell Us?
There hasn't been much to report for Keg Royalties Income Fund's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Keg Royalties Income Fund to be a multi-bagger going forward.
The Bottom Line
We can conclude that in regards to Keg Royalties Income Fund's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 16% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
If you want to continue researching Keg Royalties Income Fund, you might be interested to know about the 2 warning signs that our analysis has discovered.
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.
