What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Miramar Hotel and Investment Company (HKG:71) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Miramar Hotel and Investment Company, this is the formula:

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

0.027 = HK$552m ÷ (HK$21b - HK$727m) (Based on the trailing twelve months to June 2022).

So, Miramar Hotel and Investment Company has an ROCE of 2.7%. Even though it's in line with the industry average of 2.9%, it's still a low return by itself.

See our latest analysis for Miramar Hotel and Investment Company

Historical performance is a great place to start when researching a stock so above you can see the gauge for Miramar Hotel and Investment Company's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Miramar Hotel and Investment Company, check out these free graphs here.

What Does the ROCE Trend For Miramar Hotel and Investment Company Tell Us?

In terms of Miramar Hotel and Investment Company's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 4.9% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Miramar Hotel and Investment Company's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Miramar Hotel and Investment Company. And there could be an opportunity here if other metrics look good too, because the stock has declined 19% in the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you'd like to know about the risks facing Miramar Hotel and Investment Company, we've discovered 1 warning sign that you should be aware of.

While Miramar Hotel and Investment Company may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.