If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we’ll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company’s amount of capital employed. This shows us that it’s a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at RGC Resources (NASDAQ:RGCO), it didn’t seem to tick all of these boxes.
What Is Return On Capital Employed (ROCE)?
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. The formula for this calculation on RGC Resources is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.058 = US$17m ÷ (US$314m – US$24m) (Based on…
